Euro softens against British Pound ahead of Eurozone GDP data

The EUR/GBP cross loses momentum to near 0.8660 during the early European trading hours on Wednesday. The Euro (EUR) weakens against the British Pound (GBP) due to fears over the Eurozone's economic exposure to energy shocks from the Middle East and stalled US-Iran peace negotiations.

CNN reported on Tuesday that US President Donald Trump has grown increasingly frustrated with how the Iranians are handling talks to end the conflict, and some Trump aides say that he is now more seriously considering a resumption of major combat operations than he has in recent weeks. 

Trump said late Tuesday that he would prioritize trade discussions during his summit with Chinese President Xi Jinping and downplayed the amount of attention they would devote to the Iran war. Signs of escalating tensions between the US and Iran could drag the EUR lower against the GBP as the Eurozone suffers from a higher net dependency on imported energy. 

However, hawkish comments from the European Central Bank (ECB) officials might help limit the EUR’s losses. ECB policymaker Joachim Nagel said on Wednesday that the probability that the central bank will need to raise borrowing costs due to the Iran war is rising. 

Furthermore, intense political instability in the United Kingdom (UK) could weigh on the British Pound and act as a tailwind for the cross. UK Prime Minister Keir Starmer is facing rising pressure to set a date for his departure after elections across much of the country resulted in massive losses for his ruling Labour Party. The Labour Party suffered a historic wipeout in the local elections, losing more than 1,100 council seats that it previously held.

The preliminary reading of the Eurozone Gross Domestic Product (GDP) for the first quarter (Q1) will be published later in the day. The Eurozone economy is projected to grow 0.8% YoY in Q1.