The EUR/GBP rate climbed to about 0.8690, driven by hopes of political stability in France. French President Emmanuel Macron plans to appoint a new Prime Minister by Friday, aiming to resolve the political crisis caused by Sébastien Lecornu’s resignation. This new appointment has reduced the chance of snap elections to 37%, down from 70%. The Euro received some support, but there are still worries about parliamentary stability. The spread between French OATs and German Bunds decreased from the high-80s to the low-80s, providing temporary relief for the Euro.

European Central Bank and Bank of England Policies

Minutes from the European Central Bank (ECB) meeting are expected to indicate a stable policy, as inflation remains near 2%. Meanwhile, the Bank of England (BoE) recently advised caution regarding interest rates, impacting the British Pound. BoE officials have mentioned a careful approach due to high inflation. This has created uncertainty about the BoE’s future policy, limiting the GBP’s ability to recover. In this context, EUR/GBP maintains slight gains alongside French political tensions and uncertainty regarding BoE policy. The Euro showed mixed results against other major currencies. It gained 0.15% against the New Zealand Dollar but declined by 0.15% against the British Pound. As of October 9, 2025, the rise in EUR/GBP to 0.8690 is linked to hopes for stability in France. Market expectations are that President Macron will name a new Prime Minister by Friday, which could ease concerns about the country’s budget process. This situation presents a short-term opportunity, as the Euro finds support while the Pound faces pressure.

Key Economic Indicators and Market Strategies

Attention should be given to the spread between French 10-year government bonds (OATs) and German Bunds, which has tightened back to the low-80s basis points. This spread serves as an indicator of concern, and we saw in 2017 during the French elections how quickly it can narrow when political risks lessen, supporting the Euro. However, with Moody’s recent revision of France’s budget deficit for 2026 to 4.9% of GDP, any disappointment from the new Prime Minister could widen this spread again, making strategies that hedge against renewed volatility appealing. On the other hand, the Pound is facing challenges due to the hawkish yet uncertain comments from the Bank of England. Officials are rightly worried, as the latest Consumer Price Index (CPI) for August 2025 in the UK was 3.5%, remaining stubbornly above the 2% target. This ongoing inflation is prompting policymakers to maintain restrictive rates, which limits the GBP’s strength. This situation results in a clear policy divergence, with the ECB appearing more at ease with its current stance. Eurostat’s preliminary estimate for September 2025 inflation was 2.1%, allowing the ECB to hold a neutral position while the BoE is compelled to adopt a more aggressive tone. This fundamental difference supports a stable to stronger EUR/GBP in the medium term. In the coming weeks, we should explore strategies that take advantage of this dynamic, such as buying EUR/GBP call options to prepare for a potential rise above 0.8700 if French political news is positive. One-month implied volatility for the pair has already increased to 8.2%, reflecting the current uncertainty, suggesting that option premiums are high but could rise further if the situation worsens. Therefore, using bull call spreads could be a cost-effective way to capitalize on potential gains while managing our risk. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now