EUR/GBP weakens as US-EU trade deal backlash weighs on Euro sentiment

• The Euro falls for a second consecutive day against the British Pound as criticism mounts over the US-EU trade agreement.
• European leaders describe the deal as "unbalanced" and skewed in favor of Washington.
• EUR/GBP reversed from a near two-year high of 0.8753 on Monday, marking its sharpest daily drop since April.

The Euro (EUR) continues to weaken against the British Pound (GBP) for a second consecutive day on Tuesday, dragged down by rising backlash to the US‑EU trade deal announced over the weekend. The agreement, reached Sunday by US President Donald Trump and European Commission President Ursula von der Leyen, is being criticized by European leaders as "unbalanced" and heavily biased in favor of the US. The strong criticism has undermined investor confidence in the Euro, putting pressure on EUR/GBP as markets reassess the Eurozone's growth outlook and trade competitiveness.

At the time of writing on Tuesday, the EUR/GBP cross extends its slide, trading around 0.8656 during the American trading session, down nearly 0.20% as bearish momentum persists. The EUR/GBP cross reversed sharply on Monday after touching its highest level in nearly two years at 0.8753 -- a level last seen on November 21, 2023. The pair fell around 0.73%, marking its steepest single-day decline since April.

The US-EU trade agreement has sparked widespread backlash across Europe, with European leaders pointing to the stark imbalance in terms. While the United States (US) secured major concessions, including a $750 billion Liquefied Natural Gas (LNG) export deal and $600 billion in investment targeting key American industries, the European Union (EU) faces a flat 15% tariff tariff on a wide range of exports. That marks a sharp jump from the 1.2% average tariff rate EU goods faced in 2024, affecting major sectors like automobiles, machinery, and consumer products.

Although a "zero-for-zero" clause exempts certain strategic goods such as aircraft parts, select chemicals, semiconductor equipment, and some agricultural products, these account for only about 30% of total EU exports. The majority of European goods will still be subject to significant tariffs.

In stark contrast, US exports to the EU will remain tariff-free under the deal, giving American producers a major competitive edge in the European market. Meanwhile, punitive 50% tariffs on EU steel and aluminum exports to the US remain untouched, further underscoring the one-sided nature of the agreement.

Adding to the evolving trade developments, the US President Donald Trump and UK Prime Minister Keir Starmer met on Monday at Trump's Turnberry estate in Scotland. According to Reuters, the two leaders sat down to discuss the bilateral trade relationship between the U.S. and the UK, focusing on unresolved issues such as tariffs on steel, aluminum, pharmaceuticals, and Scotch whisky. President Trump suggested he may ease tariffs on UK pharmaceutical exports, while Starmer sought further reductions, particularly on steel. Trump expressed openness to easing restrictions in select areas, calling the current deal "a great deal for both sides," but admitted that key "sticking points" remain, particularly over industrial goods.

Looking ahead, Wednesday's Eurozone economic calendar will draw significant market attention, with the release of the preliminary estimate of second-quarter Gross Domestic Product (GDP). Alongside GDP, the European Commission will publish July figures on Economic, Industrial, and Services Sentiment. The data could play a pivotal role in shaping near-term Euro sentiment, especially after the recent backlash to the US-EU trade deal. Any signs of economic weakness may reinforce the bearish tone surrounding the Euro, while stronger figures are likely to offer some support.