EUR/GBP climbs toward 0.8700 as risk sentiment improves

• EUR/GBP edges higher amid improved risk sentiment after President Trump announced less severe tariffs on Chinese imports.
• German Chancellor-in-waiting Friedrich Merz cautioned, "President Trump's policies are heightening the risk of an earlier-than-expected financial crisis."
• UK 10-year gilt yields climbed to 4.76%, reflecting continued volatility in global bond markets amid intensifying US-China trade tensions.

EUR/GBP remains stronger for the third successive session, trading around 0.8670 during the Asian hours on Monday. The currency cross appreciates amid improved risk sentiment after US President Donald Trump announced less severe tariffs late Sunday on Chinese imports, including semiconductors and electronics. However, clarifying earlier speculation about exemptions, Trump confirmed these goods would remain subject to the existing 20% tariffs related to fentanyl rather than the previously suggested 145% duties.

In an interview with Handelsblatt on Saturday, German Chancellor-in-waiting Friedrich Merz expressed concern over Trump's economic approach, stating, "President Trump's policies are increasing the risk that the next financial crisis will hit sooner than expected." Merz also voiced support for a new transatlantic trade agreement, adding, "Zero percent tariffs on everything--that would be better for both sides."

The upside potential for EUR/GBP cross may be capped as the Pound Sterling (GBP) remains supported by a rise in UK 10-year gilt yields, which reached 4.76% amid ongoing volatility in global bond markets driven by escalating US-China trade tensions. China's Ministry of Finance announced a sharp tariff hike on US goods, raising duties from 84% to 125%, following President Trump's earlier move to increase tariffs on Chinese imports to 145%.

UK GDP data suggested the economy expanded by a stronger-than-expected 0.5% in February, marking the fastest monthly growth in nearly a year with broad-based gains across key sectors. The upside surprise--partly fueled by a surge in pre-tariff manufacturing--prompted investors to dial back expectations for aggressive Bank of England (BoE) rate cuts. Nonetheless, markets still anticipate at least three quarter-point reductions this year.