GBP/EUR Recovers Losses After Trump Denies Tariff Report

Official White House Photo by Shealah Craighead

The Euro was a stand-out winner on news Donald Trump would not apply a universal import tariff.

However, gains by the Eurozone's single currency were ultimately pared when Trump denied the report.

"The story in the Washington Post, quoting so-called anonymous sources, which don’t exist, incorrectly states that my tariff policy will be pared back. That is wrong," Trump said in a Truth Social post on Monday.

The rebuttal came after the Post said Trump is considering imposing tariffs on only critical imports from all countries.

"The current discussions centre on imposing tariffs only on certain sectors deemed critical to national or economic security," the newspaper said.

Regardless of Trump's response to the report, the threat of stringent U.S. tariffs being placed on an already struggling Eurozone economy now looks overblown following news the incoming U.S. president will only target 'critical' imports.

All signs point to a more nuanced approach to tariffs by Trump, lowering the tail risks of a blanket tariff.

"The euro, which had been particularly pressured under U.S. tariff threats to the bloc, has seen an even bigger climb against the dollar, helping lift it against the pound to be worth above 83 pence," says W. Brad Bechtel, Global Head of FX, at Jefferies LLC.

EUR/GBP's rose to 0.8314 following the Washington Post report, before paring the gain to 0.83, bringing the Pound to Euro conversion rate back to 1.2044.

The Dollar had been a major beneficiary of Trump's win in November as markets saw the imposition of universal tariffs as being inflationary for the U.S. while being a headwind to EU and global growth.

Trump campaigned on a platform of imposing a blanket 10-20% tariff on all U.S. imports.

GBP/EUR investment bank consensus forecast for 2025. See the median, mean, highest and lowest point targets, giving a highly accurate forecasting resource. Request it Now.

"The Eurozone should be vulnerable in a trade conflict given the region’s reliance on manufacturing (16% of GVA, third-highest in G10)," says a note from JP Morgan.

Exports to the U.S. are 17% of total EU exports, amounting to 3% of the region's GDP.

JP Morgan said the Euro could fall to parity or below against the U.S. Dollar in Q1 as tariff risks get more fully priced, which would add upside pressure to GBP/EUR.

The flip side is that any reduction in tariff risks eases that downside thesis.

Should any resultant EUR/USD recovery outpace the GBP/USD recovery, then GBP/EUR would mechanically trade lower.

For GBP/EUR, 1.20 is back into contention and sub-1.20 levels will likely be tested before a return to the 2024 highs at 1.2150.

The latest developments in the tariff saga form part of a pettern in which Trump pushes his agenda by creating an environment of uncertainty, as this allows him to stay on the front foot.

He caught markets by surprise in November when he unexpectedly threatened China, Mexico and Canada with tariffs owing to domestic issues centred on illegal migrant flows and drugs.

Expect more of the same in the coming months.