When will the Euro outperformance come to end?

The Pound's run against the Euro came to a crashing end last week, falling 1.6%. I mentioned last week the pair looked to be in overbought territory after rising 5 out of the last 6-weeks, but I didn't see such a large drop coming (thanks Germany).

The pair is now trading at a 6-week low (well done to those who already acted), but what happens next?

As always, there are multiple variables at play in moving the FX market. However, in a hyper-sensitive environment everything is heightened (more volatility makes forecasts almost impossible). Plus the fact some of these variables around at the moment (tariffs, war, fiscal, defense) are serious market drivers. 

In the short-term, I now believe the Pound's recent sell-off versus the Euro is oversold and we should see a correction this/next week. But, further losses on the pair could be sustained first (depending on news from any of the above). 

GBP v USD rose by 2.5% last week, the biggest weekly advance since November 2022 after the USD was sold-off. The pair is trading at the highest point since November 2024 and so represents good value, especially as I think overbought territory has been reached here too. 



EUR
Fundamentally, the Euro has been strengthened by President Trump's recent actions on Ukraine and tariffs. There is no doubt there has been a shift on how investors are now viewing the Euro, after falling out of love with the single currency last year. 

Will the Euro consolidate or improve at current levels? I'm not so sure..

Last week's 4.4% rise versus the USD was the biggest weekly gain for an astonishing 17-years. This proves just how much investors respect Germany's response to Trump's actions. But with rapid gains, usually rapid declines are not too far away, especially because of how much the Euro has strengthened in such a short space of time.

It's for this reason, a Euro retreat is very much on the cards this/next week in our opinion. Plus, we expect to see further weakness once US tariffs on the EU are announced and later implemented. With this in mind, we expect to see the Euro slightly weaker from here rather than stronger near-term.



USD
As expected last week, the Dollar was volatile. In reality, it was absolutely battered across the board. We maintain however that we see no downward trend in the USD (yet), as the world is full of uncertainty.

This week sees most of the economic action coming out of the US and so volatility is set to remain, but likely at much, much lower levels than last week.