EUR/GBP bounced from early losses on Friday after Eurozone GDP data met forecasts. The pair traded near 0.8717 after rebounding from around 0.8700. Eurostat said Eurozone GDP rose 0.3% quarter-on-quarter in Q4 2025, matching both expectations and the prior reading. Annual GDP grew 1.4% in Q4, above the 1.3% forecast. Employment Change held at 0.2% quarter-on-quarter in Q4, above the 0.1% forecast. Annual employment growth was 0.6%, in line with expectations. ECB Governing Council member Gabriel Makhlouf said inflation is “basically on target” and that policy is in a good place. He also said the data supports keeping policy unchanged. In the UK, GDP grew 0.1% quarter-on-quarter in Q4, below the 0.2% expectation. Annual GDP growth slowed to 1% from 1.2%. BoE chief economist Huw Pill said policy should focus on underlying inflation, which he put closer to 2.5% than 2%. He added that policy remains restrictive and that holding rates at current levels should be enough. Reuters reported that EUR/GBP risk reversals rose to 78.8 basis points on Tuesday, the highest level since late September. Last quarter’s data shows a clear split that favors the Euro over the Pound. The Eurozone is growing as expected and the labour market looks steady, which supports the Euro. The UK, by contrast, posted weaker growth, which adds pressure to the Pound. Central bank signals are also pushing in the same direction. The ECB looks comfortable with its current stance, especially after January 2026 inflation printed at 2.1%, right on target. The BoE, meanwhile, is sounding more dovish as growth softens, even though underlying inflation is still a concern. Options markets reinforce this view. Risk reversals show the strongest demand for Euro calls since last September. With one-month EUR/GBP implied volatility at a low 4.8%, it is relatively cheap to buy options that benefit from a higher exchange rate. This supports looking for upside with defined risk. With that in mind, the 0.8700 area looks like an important support zone after Friday’s bounce. Building long EUR/GBP exposure—potentially through call spreads—looks reasonable. If the divergence continues, a move toward the 0.8850 resistance from late 2025 is a realistic target in the coming weeks.

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