EUR/GBP rises above 0.8600, traders focus on US-UK trade talks

• EUR/GBP edges higher as the Euro gains support amid growing fears of a potential US recession.
• The ECB also warned that US-imposed tariffs could severely impact economic growth, adding to expectations of further monetary easing.
• UK PM Keir Starmer is working to secure a trade agreement with the US following Trump's announcement of new tariffs.

EUR/GBP extends its gains for the second successive session, trading around 0.8600 during the Asian hours on Monday. The currency cross strengthens as the Euro (EUR) advances against its counterparts, supported by persistent weakness in the US Dollar (USD) amid rising concerns about a potential US recession and questions surrounding the Federal Reserve's (Fed) independence.

However, the Euro faced challenges after the European Central Bank (ECB) cut interest rates for the seventh time in a year last week. The ECB also cautioned that economic growth could be significantly impacted by US tariffs, reinforcing expectations for further policy easing in the coming months.

Moreover, ECB policymaker Madis Müller noted that the decline in energy prices and the impact of tariffs supported the recent rate cut. Müller emphasized that monetary policy is no longer acting as a constraint and highlighted that key indicators are trending in the right direction. However, he also warned that increasing economic fragmentation could lead to upward pressure on prices.

The upside potential of the EUR/GBP cross may be capped as the Pound Sterling (GBP) also strengthens, buoyed by optimism over ongoing US-UK trade talks. UK Prime Minister Keir Starmer is aiming to secure a deal with the US following President Trump's announcement of 10% tariffs on UK goods and a 25% levy on imports of automobiles, steel, and aluminum.

UK Prime Minister Keir Starmer and US President Donald Trump held their first conversation on Friday since the imposition of tariffs on UK goods, describing the trade talks as "ongoing and productive." According to a Downing Street official, Starmer reaffirmed his commitment to "free and open trade" while underscoring the importance of safeguarding the national interest.