EUR/GBP stays above 0.8800 after German inflation news. Germany’s Harmonized Index of Consumer Prices (HICP) rose by 2.3% year-on-year (YoY) in October. The Bank of England (BoE) is unsure about how strict the UK’s monetary policy should be.

Recent Developments in EUR/GBP

EUR/GBP continued to rise for the second day, reaching about 0.8810 in early European trading. The pair hit a high of 0.8829, its highest since May 2023, after Germany released its latest CPI and HICP data. Germany’s HICP increased by 2.3% YoY in October, matching market expectations, with a monthly rise of 0.3%. The CPI also showed a 2.3% increase YoY, indicating steady monthly inflation at 0.3%. The European Central Bank (ECB) is likely to keep interest rates steady, supported by stable economic data and inflation near their targets. Meanwhile, the EUR/GBP pair may strengthen as the GBP struggles, with expectations of a BoE rate cut in December. Megan Greene from the BoE expressed concerns about UK wage data and ongoing inflation, suggesting a possible need for stricter monetary policy. She also highlighted the importance of risk management in shaping the BoE’s approach.

Impact of Central Bank Policies

The current difference in policies between the European Central Bank and the Bank of England is supporting the upward trend in the EUR/GBP pair. With the pair trading at highs not seen since May 2023, the momentum favors a stronger Euro. This trend should guide any strategies in the upcoming weeks. On the Euro’s side, Germany’s inflation stability at 2.3% supports the idea that the ECB will maintain interest rates. Recent data from Eurostat for October 2025 confirmed this, showing Eurozone headline inflation at a manageable 2.4%. This is a notable contrast to the high volatility and declines seen in 2023-2024. The main factor driving the pair’s strength is the expectation that the Bank of England will cut interest rates next month. However, Megan Greene’s recent remarks questioning whether the current policy is restrictive enough challenge this expectation. This poses a risk of a policy surprise that could shift the pair’s direction. Supporting Greene’s cautious view, the latest data from the UK Office for National Statistics revealed core inflation for October 2025 remains unexpectedly high at 4.1%, well above the BoE’s target. We recall how persistent inflation in UK services proved to be in 2024, suggesting ongoing price pressures may not be contained enough for a rate cut. This makes the market’s expectation of a December cut look increasingly uncertain. Given the clash between market expectations and a hawkish central bank official, we anticipate an increase in implied volatility for EUR/GBP. Traders might consider buying options such as straddles that expire after the December BoE meeting. This strategy would benefit from a significant price move in either direction, whether the bank cuts as anticipated or surprises by holding rates steady. For those looking to follow the upward trend, purchasing EUR/GBP call options is a straightforward strategy. We recommend considering January 2026 expiries to allow time for the trend to develop post-BoE meeting. However, it would also be wise to buy some cheaper, out-of-the-money put options as protection against a sudden drop if the BoE surprises the market by holding rates. Create your live VT Markets account and start trading now.

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