Market Analysis

Image Credit: FXSTREET

The EUR/GBP remains stable around 0.8330 during early European trading on Wednesday, after losses in the previous session. Market participants are staying cautious ahead of the upcoming U.S. Consumer Price Index (CPI) inflation data.

The EUR/GBP pair is seeing little movement as risk aversion rises amid escalating geopolitical tensions in the Middle East. Israeli Prime Minister Benjamin Netanyahu warned that Israel would resume intense fighting in Gaza if Hamas does not release hostages by Saturday noon. U.S. President Donald Trump has urged Israel to break the ceasefire if the hostages are not returned.

The Euro may face additional downside risks, as the Eurozone is particularly vulnerable to potential reciprocal tariffs. Currently, the EU imposes a 10% tariff on U.S. automobile imports, while U.S. car exports to the EU are subject to only a 2.5% tariff. The Trump administration is moving forward with an executive action plan to impose reciprocal tariffs, which could lead to higher tariffs on goods from Japan, the EU, and China.

The EUR/GBP could weaken further, as the British Pound (GBP) faces challenges following dovish comments from Bank of England (BoE) MPC member Catherine Mann. In a recent interview, Mann noted weaker demand conditions and expressed confidence that inflation would align with the BoE's 2% target later this year, while highlighting a "non-linear" decline in employment.

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