EUR/GBP dipped near 0.8452 as concerns over US President Donald Trump's tariff threats and dovish expectations from the ECB weighed on the euro. Recent remarks from ECB President Christine Lagarde and key policymakers Francois Villeroy de Galhau, Klaas Knot, and Yannis Stournaras indicated further rate reductions in 2025. The ZEW Indicator of Economic Sentiment for Germany fell to 10.3 points from 15.7, below the expected 15.2, stoking concerns about Germany's economic outlook. The Eurozone's ZEW Economic Sentiment rose to 18.0 points from 17.0 slightly above the forecasted 16.9.

Sterling faces its own challenges as investors anticipate a rate cut from the Bank of England (BoE) will implement a rate cut at its upcoming meeting. Weaker-than-anticipated inflation, disappointing December Retail Sales figures, moderate GDP growth, and the market continue to pressure the pound.

With no significant UK economic releases duetoday, broader market sentiment, particularly surrounding the UK's latest public borrowing data and Eurozone consumer confidence figures, will guide EUR/GBP movements.

GBP/USD struggles due to tariff concerns

The dollar strengthened against sterling yesterday, trading near 1.2299 after President Trump issued a memorandum instructing federal agencies to investigate and address ongoing trade deficits. Growing concerns over Trump's protectionist policies have fueled fears of potential inflationary pressures and a more hawkish Federal Reserve stance, contributing to dollar volatility.

Meanwhile, Sterling faced additional pressure due to higher-than-expected United Kingdom (UK) Public Sector Net Borrowing in December. Public sector net borrowing was 17.8 billion pounds in December, up from 11.8 billion pounds, surpassing the median forecast of 14.1 billion pounds. Disappointing UK inflation and retail sales figures for December, coupled with sluggish labour demand and modest GDP growth have fuelled expectations of a 25 bps rate cut by the Bank of England (BoE) in February.

With limited economic data due today, cable traders will focus on Friday's S&P Global PMI figures from the UK and US for a fresh direction on GDP/USD.

NZD/USD subdued by tariff concerns

NZD/USD struggled near 0.5656 as the dollar strengthened onhawkish sentiment around the US Federal Reserve's (Fed) policy stance. Speculation that the Trump administration's policies could stoke inflationary pressures, could bolster the greenback. Trump’s recent suggestion of a possible 10% tariff on Chinese-made goods docking in the US from February 1 has reignited trade war concerns, pressuring the China-proxy Kiwi.

However, fresh stimulus measures from New Zealand and its key trading partner, China, could provide some support for the kiwi . On Thursday, New Zealand's Prime Minister Christopher Luxon announced plans to relax foreign investment regulations to attract and support overseas foreign investors. Beyond broader market concerns, Friday's preliminary US S&P Global Purchasing Managers Index (PMI) will be key drivers for NZD/USD.

GBP/JPY whipsaws ahead of BoJ policy decision

GBP/JPY fluctuated near 192.61 as the yen gained support from better-than-expected Trade Balance data and market speculation that the Bank of Japan (BoJ) interest rate hike at Friday's meeting. Hawkish comments from BoJ Governor Kazuo Ueda and Deputy Governor Ryozo Himino further bolstered the Japanese currency.

Japan’s Trade Balance swung to a surplus of ¥130.9 billion in December, confounding expectations of a ¥55 billion deficit. Resilient exports, up 2.8% YoY in December, drove the turnabout despite slowing from November's 3.8% growth. Imports rebounded with a 1.8% YoY rise after a 3.8% contraction in November but fell short of the 2.6% forecast, indicating subdued domestic demand.

Meanwhile, sterling faces headwinds from higher-than-anticipated Public Sector Net Borrowing in December, disappointing inflation and retail sales data, weakening labour demand, and sluggish GDP growth. Traders will closely watch the BoJ’s policy decision and flash UK S&P Global/CIPS Purchasing Managers Index (PMI) data for January in upcoming sessions.

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