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EUR/GBP surges above 0.8650 as EU extends suspension of countermeasures to US tariffs

  • EUR/GBP climbs as the Euro strengthens after the EU extended its suspension of retaliatory measures against US tariffs.
  • President Trump imposed a 30% tariff on imports from the European Union and Mexico.
  • The Pound Sterling struggles as disappointing UK GDP data has reinforced expectations of the BoE delivering rate cut in August.

EUR/GBP extends its gains for the second successive session, trading around 0.8670 during the early European hours on Monday. The currency cross gains ground as the Euro (EUR) receives support following the European Union’s (EU) announcement on Sunday that it will extend its suspension of countermeasures to United States (US) tariffs until early August, aiming to pursue a negotiated settlement.

On Saturday, US President Donald Trump announced a 30% tariff on imports from the European Union (EU) and Mexico starting August 1. Trump also proposed a blanket tariff rate of 15%-20% on other trading partners, an increase from the current 10% baseline rate.

German Chancellor Friedrich Merz expressed strong commitment to securing a deal, warning that a 30% tariff would hit “at the core” of Germany’s export-driven economy. Von der Leyen added that the EU’s Anti-Coercion Instrument, which enables robust countermeasures, remains off the table for now, stating, “we are not there yet.”

Italian Foreign Minister Antonio Tajani stated on Monday that if no deal is concluded with the US, the EU has already prepared a list of retaliatory tariffs amounting to €21 billion against the US. Tajani added that the ECB should consider a new QE programme, rate cuts in face of US tariffs.

The EUR/GBP cross also draws support as the Pound Sterling (GBP) faces challenges following the release of disappointing United Kingdom (UK) Gross Domestic Product (GDP) and factory data for May. The decline in economic activity has strengthened market expectations that the Bank of England (BoE) could reduce interest rates in the August policy meeting.

Tariffs FAQs

Tariffs are customs duties levied on certain merchandise imports or a category of products. Tariffs are designed to help local producers and manufacturers be more competitive in the market by providing a price advantage over similar goods that can be imported. Tariffs are widely used as tools of protectionism, along with trade barriers and import quotas.

Although tariffs and taxes both generate government revenue to fund public goods and services, they have several distinctions. Tariffs are prepaid at the port of entry, while taxes are paid at the time of purchase. Taxes are imposed on individual taxpayers and businesses, while tariffs are paid by importers.

There are two schools of thought among economists regarding the usage of tariffs. While some argue that tariffs are necessary to protect domestic industries and address trade imbalances, others see them as a harmful tool that could potentially drive prices higher over the long term and lead to a damaging trade war by encouraging tit-for-tat tariffs.

During the run-up to the presidential election in November 2024, Donald Trump made it clear that he intends to use tariffs to support the US economy and American producers. In 2024, Mexico, China and Canada accounted for 42% of total US imports. In this period, Mexico stood out as the top exporter with $466.6 billion, according to the US Census Bureau. Hence, Trump wants to focus on these three nations when imposing tariffs. He also plans to use the revenue generated through tariffs to lower personal income taxes.