Sticky UK inflation and stronger activity data have reduced expectations for Bank of England rate cuts and supported the Pound. Softer labour data has not caused a major shift toward a more dovish outlook.
A by-election in Greater Manchester on 26 February is linked to higher near-term GBP volatility. The Pound’s muted response to last week’s stronger data suggests positioning may stay cautious until after the vote.
Outlook For Eur Gbp
EUR/GBP is expected to drift lower once political uncertainty fades. Recent UK growth indicators are improving and may continue to strengthen.
The Pound is being supported by stubborn inflation and an economy that has held up better than expected. This is limiting how quickly markets think the Bank of England will cut rates. January inflation was 2.9%, still above the central bank’s target, and that strength is helping to put a floor under the currency for now.
Even so, investors appear hesitant, echoing the political uncertainty seen around last year’s by-election in 2025. With the Chancellor’s Spring Budget due on 11 March, short-term GBP volatility is likely to stay elevated. In other words, supportive economic data is being held back by near-term political event risk.
For derivative traders, this mix of high uncertainty and a firm underlying trend can create opportunities. The rise in one-month implied volatility suggests options are pricing a sizeable move. Strategies such as buying straddles or strangles may help capture a post-budget breakout, allowing traders to benefit from a large swing without needing to predict direction.
Potential Post Budget Positioning
Historically, EUR/GBP drifted lower after political risks eased in late February and early March 2025. If the budget passes without major negative surprises, a similar pattern could emerge, with the Pound’s strength reflecting the improving data more clearly. Positioning for a move lower in EUR/GBP after the budget could therefore be a sensible medium-term approach.
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