The EUR/GBP pair rose on Friday, getting close to 0.8700 after hitting 0.8725 during the European session. Market changes were affected by political unrest in France and sluggish growth in the UK. There are growing concerns about US-China trade tensions, with discussions around potential tariffs. In France, political talks suggested that pension reforms might be delayed, while the UK is worrying about taxes amid financial challenges.

Interest Rate Expectations

Both the Bank of England and the European Central Bank are likely to keep interest rates steady. However, the Bank of England is expected to lower rates next year, while the ECB has finished its phase of rate cuts as disinflation has ended. From a technical standpoint, EUR/GBP may stay stable, but if it drops below 0.8677, it could signal a decline. On the other hand, a rise above 0.8700 could push the pair towards September’s peak of 0.8751. This week, the British Pound was strongest against the New Zealand Dollar. A heat map showed how the Pound performed against other major currencies. As of October 10, 2025, the EUR/GBP exchange rate is influenced by opposing forces, creating a range-bound situation. Both economies show weakness, with French political unrest affecting the Euro and significant financial issues in the UK holding back the Pound. This indicates that the pair will likely stay within the 0.8650 to 0.8750 range in the near term.

Economic Challenges and Opportunities

The UK’s weak job market and uncertainty around finances are challenging for the Pound. Recent data from the Office for National Statistics indicated UK GDP growth of only 0.1% for Q3, with 10-year Gilt yields rising back to 4.3% as investors seek higher returns. This anxiety is reminiscent of the market’s reaction during Liz Truss’s brief government in 2022, highlighting that any sign of fiscal instability will lead to a sell-off. In France, unrest is a significant issue, with recent polls showing consumer confidence dropping to 89.5, the lowest since protests began last month. Nevertheless, the European Central Bank’s strong stance helps support the Euro. President Lagarde has indicated the end of the easing cycle, backed by Eurozone HICP inflation data from September 2025, which remains steady at 3.1%. The key factor in the coming weeks will be the central banks. The market is pricing in two possible rate cuts by the Bank of England in 2026, following UK inflation’s drop to 2.8% last month, while the ECB appears set to maintain its current stance. This fundamental difference suggests a long-term positive outlook on EUR/GBP, despite it currently consolidating. Given this tight range, traders might explore selling volatility through strategies like short strangles with strikes placed outside the 0.8650 and 0.8750 levels. This approach could earn premiums from the expected lack of major movement soon. The VIX has risen to 22.5 due to global trade concerns, making option premiums more appealing. For those predicting a breakout, buying call options with a strike above 0.8750 would prepare for a potential upward move, likely triggered by worsening fiscal news from the UK. Conversely, if the pair falls below the 50-day moving average at 0.8677, put options could be beneficial for betting on a drop towards the 0.8600 level. Such a decline might occur if there’s an unexpected resolution to the political situation in France. Create your live VT Markets account and start trading now.

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