Synopsis:

Danske remains structurally bearish on EUR/GBP in 2025, citing the UK’s better insulation from US tariffs, a relatively hawkish BoE, and a UK growth pickup relative to the euro area. On days where tariffs dominate headlines, GBP has outperformed within G10 FX, reinforcing their bearish view on EUR/GBP.

Key Points:

Why the UK is Better Insulated from US Tariffs than the Eurozone

• UK exports more services to the US rather than goods, reducing tariff exposure.
• Smaller UK trade deficit with the US compared to the euro area, making it a less likely target.
• Stronger diplomatic ties between US President Trump and UK PM Starmer.

Why Danske is Bearish on EUR/GBP

• GBP has outperformed during tariff-related market moves, suggesting resilience.
• A relatively hawkish BoE supports GBP, compared to a more dovish ECB.
• UK growth expected to outperform the euro area in 2025.
• Tight credit spreads and a positive GBP-USD correlation favor GBP in a USD-positive investment environment.

Conclusion:

Danske sees continued downside in EUR/GBP as the UK is less vulnerable to tariffs, has stronger growth prospects, and benefits from a more supportive BoE. They maintain a strategic bearish stance on EUR/GBP throughout 2025.