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• EUR/GBP edges higher as Trump’s remarks boost optimism over easing trade tensions.
• The European Commission is readying retaliatory tariffs of up to 25% on €22.1 billion worth of US exports.
• Expectations for monetary easing have strengthened, with markets now fully pricing in a rate cut in May.

EUR/GBP continues its upward momentum for a fifth consecutive session, trading near 0.8600 during Wednesday’s European hours. The currency cross is buoyed by improving global trade sentiment after US President Donald Trump signaled a willingness to negotiate with international partners, raising hopes of de-escalating trade tensions. US Treasury Secretary Scott Bessent added to the optimism, revealing that nearly 70 countries have reached out to discuss tariff measures.

Despite the upbeat tone, the European Commission (EU) is preparing retaliatory tariffs of up to 25% on US exports worth about €22.1 billion. In a recent discussion with Chinese Premier Li Qiang, Commission EU President Ursula von der Leyen proposed a "negotiated resolution" to the "widespread disruption" caused by US tariffs.

Moreover, dovish expectations for the European Central Bank (ECB) may weigh on the Euro. Policymakers, including Italy’s Piero Cipollone, France’s François Villeroy de Galhau, and Greece’s Yannis Stournaras, have signaled support for further monetary easing. Ahead of a key meeting of Eurozone finance ministers in Warsaw on Friday, Stournaras emphasized that new tariffs wouldn’t derail an expected April rate cut, estimating a potential 0.3%–0.4% drag on Eurozone GDP in the first year.

The upside of the EUR/GBP cross could be limited as the Pound Sterling (GBP) is finding support from rising UK gilt yields, with the 10-year yield hovering around 4.66%. While US tariffs pose risks, the UK’s limited 10% exposure and potential to replace disrupted suppliers could cushion the blow. The UK government expects the direct GDP impact to be less than 0.1%.

Meanwhile, expectations for Bank of England (BoE) rate cuts have firmed. Markets are now fully pricing in a rate cut in May—up from 50% earlier—and anticipate three cuts by the end of 2025.

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