The EUR/GBP exchange rate has stayed above 0.8815 due to the Pound’s overall weakness. Although the Euro reached a week-high of 0.8865, it found support at 0.8815. The Pound is currently under pressure from the UK’s fiscal debt issues and disappointing economic data. A report from the Financial Times suggests that the UK may rethink its plans to increase income tax. While this could help the economy, the ongoing fiscal challenges are causing a slight decline in the Pound.

Economic Activity and Bank Decisions

In the third quarter (Q3), the UK economy nearly stalled, with drops in Industrial and Manufacturing Production. This raises the chances of a rate cut by the Bank of England in December. In the Eurozone, Q3 GDP showed a growth of 0.2%, and the trade surplus rose to EUR 19.4 billion in September. However, these positive numbers have had little effect on the Euro. The Pound Sterling’s value is mainly influenced by the Bank of England’s monetary policy, which aims for a 2% inflation rate. Economic data, such as GDP and trade balance, also play a role. Good data helps strengthen the Pound, while bad data leads to a drop. The Pound’s weakness keeps the EUR/GBP rate above the 0.8815 support level. This is caused by ongoing concerns about the UK’s fiscal policies and a series of poor economic reports. Traders may consider buying during dips as the preferred strategy in the short term.

Outlook and Trading Strategies

The likelihood of a rate cut by the Bank of England in December is increasing, particularly after Q3 growth was close to zero. This week’s inflation report indicated that CPI has fallen to 2.1%, putting it close to the BoE’s 2% target. Markets now estimate an 85% chance of a rate cut next month, which is putting additional pressure on the Pound. On the other hand, the Eurozone appears more stable, with confirmed Q3 GDP growth and a growing trade surplus. The European Central Bank seems to be holding steady, as officials recently noted that core inflation is still too high for any talk of easing policy. This difference in policy between a cautious BoE and a stable ECB supports the EUR/GBP pair. We should recall how markets reacted to uncertainty in UK fiscal policies, especially during the turmoil of autumn 2022. Current discussions about potentially dropping tax hikes ahead of the November 26 Budget are bringing back similar worries about the UK’s debt. This situation makes traders reluctant to hold the Pound, even if there are short-term economic boosts from such policies. For those trading derivatives, this environment favors strategies that benefit from a rising EUR/GBP. Buying call options with strike prices above 0.8900 might be effective for capturing potential upward movements in the coming weeks. Keeping an eye on the 0.8815 level as a guide, a sustained drop below it could indicate a shift in sentiment. However, for now, the trend seems to be upward. Create your live VT Markets account and start trading now.

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