EUR/GBP rises to near 0.8300 following Germany’s conservative victory

• EUR/GBP climbs as market sentiment improves after Germany’s conservative election victory.
• Investors focus on the coalition-building process, with strong leadership viewed as essential for driving key fiscal reforms in Germany.
• The Pound Sterling may find support as expectations for a Bank of England rate cut in March ease.

EUR/GBP gains as the Euro finds support following Germany’s conservative victory in the election, aligning with expectations. Preliminary results confirm the win for the Christian Democratic Union (CDU) and its ally, the Christian Social Union (CSU), led by chancellor candidate Friedrich Merz. The currency cross trades around 0.8300 during the early European hours on Monday.

Market attention now shifts to the coalition-building process, with stable leadership seen as crucial for advancing key fiscal reforms. This political outcome comes amid Germany’s economic stagnation, the ongoing conflict in Ukraine, and rising tariff threats from US President Donald Trump. A proposed reform of Germany’s debt brake, which has long hindered investment, is expected to further strengthen the Euro.

Meanwhile, European Central Bank (ECB) policymaker Pierre Wunsch told the Financial Times that while he isn’t advocating for an April pause, rate cuts shouldn’t happen automatically without proper consideration. ECB’s Francois Villeroy de Galhau also suggested the ECB could lower its deposit rate to 2% by summer, according to Reuters.

However, EUR/GBP’s upside may be limited as the Pound Sterling (GBP) draws support from strong UK Retail Sales data for January, reducing expectations of a Bank of England (BoE) rate cut in March. These expectations were already challenged by hotter-than-expected January inflation and robust Average Earnings data through December. 

However, the British Pound could face challenges as the Bank of England (BoE) Governor Andrew Bailey remains concerned over economic prospects this year. Earlier this week, Bailey warned that the economic growth is expected to remain sluggish.