EUR/GBP fell on Monday, ending a three-day rise, and traded around 0.8725, down 0.15%. The pair remained below the 0.8750 resistance level, which is a one-month high, after a gain on Friday. Concerns about potential easing measures from the Bank of England, along with worries about the UK’s budget outlook before the November Budget, weighed on the British pound. Markets now see a higher chance of a 25-basis-point rate cut in November, as inflation is stable and the labor market cooled in September.

ECB Policy Signals

In contrast, the European Central Bank suggested that its easing period may be over. By the end of 2026, futures predict a low chance of further cuts, which supports the euro against the pound. Political instability in France has dampened enthusiasm for the euro. The leader of the Socialist Party has threatened to break up the government if budget requirements aren’t met, and Moody’s has changed France’s outlook to “negative” due to concerns over political deadlock and high fiscal deficits. Germany’s IFO Business Climate Index rose to 88.4 in October, just above the predicted 87.8, providing some support for the euro. Nonetheless, investors remain cautious as they await Thursday’s ECB policy decision for more guidance on the euro’s direction. Today’s currency movements showed that the euro is gaining strength against the Swiss Franc, as indicated in a percentage change table.

British Pound Challenges

A clear divide is developing between the Bank of England and the European Central Bank, which will be crucial in the coming weeks. The market increasingly believes the BoE will cut rates in November to support the slowing economy. Overnight Index Swaps now show an 85% chance of a 25-basis-point cut at the November 6th meeting, a sharp rise from two weeks ago. The British Pound faces additional pressure from budget concerns ahead of the Autumn Budget. The CPI data from September 2025, showing inflation steady at 2.3%, allows the BoE to focus on growth over inflation. This trend supports our expectation of a weaker Pound against the Euro. In contrast, the European Central Bank has made it clear it will hold rates steady for now. Key policymakers remain firm on this stance, with futures suggesting almost no chance of cuts before 2027. This difference in policies could provide a strong boost for the EUR/GBP pair. However, we must keep an eye on France’s political situation, which is limiting the Euro’s potential. The gap between French and German 10-year government bond yields has widened to 65 basis points, the highest since the political turmoil of 2024, indicating investor unease. This political risk significantly hampers a stronger rally in the Euro. For derivative traders, this scenario suggests positioning for a steady increase in EUR/GBP, possibly by using call options to take advantage of upward movements while managing downside risk from French political developments. The 0.8750 level remains an important resistance point, and breaking above it could be a target for December contracts. This situation is similar to the 2014-2015 period, where a policy divergence led to a prolonged rally in the pair. Before making significant moves, everyone will be watching the ECB’s policy decision this Thursday. While no changes are anticipated, the tone of the press conference is crucial for confirming the central bank’s unwavering stance. This event will likely be a key factor for the EUR/GBP exchange rate. Create your live VT Markets account and start trading now.

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