The EUR/GBP exchange rate has increased, bouncing back from a recent seven-week low. The pair is currently around 0.8647, up about 0.35%. The Euro is finding some support despite market uncertainties, while the British Pound is under pressure. Recent data from Germany shows that the Consumer Price Index (CPI) rose by 0.3% in July. The Harmonized Index of Consumer Prices (HICP) increased by 0.4% month-on-month, but the annual rate dropped to 1.8%, which is below the European Central Bank’s (ECB) target of 2%.

Eurozone Labor Market Resilience

The unemployment rate in the Eurozone has fallen to 6.2%, slightly better than expected, indicating some strength in the labor market. There are growing expectations that the Bank of England (BoE) may cut interest rates at its next meeting due to signs of economic weakness. UK GDP figures show consecutive monthly declines, raising worries about a potential recession. Labor market data reveal decreasing payroll numbers and rising unemployment, suggesting the central bank may need to change its interest rates. The Bank of England aims to keep prices stable by adjusting interest rates. In extreme cases, it might use Quantitative Easing or Quantitative Tightening to adapt to different economic situations. These measures affect the value of the Pound Sterling. The EUR/GBP rate is climbing from its lows to around 0.8647, largely due to differing economic outlooks. The main driver of this trend is the increasing belief that the Bank of England will cut interest rates soon, contrasting with the European Central Bank’s more stable economic situation.

Historical Comparisons And Current Trends

The British Pound faces significant pressure because of clear signals of economic weakness. Recent data from the Office for National Statistics revealed a 0.2% GDP contraction for the second quarter of 2025. Additionally, the UK unemployment rate rose to 4.5% in July. All eyes are on the Bank of England’s meeting scheduled for August 7th, where interest rate futures currently reflect an 85% chance of a rate cut. Looking back to the period after the 2016 Brexit vote, we see a historical analogy. During that time, uncertainty about the UK economy led the BoE to adopt a much looser policy compared to the ECB. Consequently, the EUR/GBP pair gradually increased from the mid-0.70s to above 0.90 over the following months. Meanwhile, the Euro has remained stable despite German inflation easing to 1.8%. Support comes from a strong labor market, with a record low unemployment rate of 6.2% in the Eurozone. Additionally, the latest Eurostat data shows core inflation in the region is sticking at 2.7%, giving the ECB little reason to consider cutting rates. For derivative traders, this policy divergence offers a clear path for upcoming weeks. We favor long positions in EUR/GBP, and purchasing call options with a September expiry seems like a smart strategy. This allows us to benefit from a potential upward move if the BoE follows through with the expected rate cut. However, it is crucial to be aware of the risks involved. Any unexpectedly hawkish comments from the Bank of England could lead to a sharp reversal in the Pound. To mitigate this risk, we might think about buying some out-of-the-money put options as a safeguard against any unexpected downturn. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now