The EUR/GBP pair is trading slightly higher due to mixed economic data from the Eurozone. Weak business confidence in Germany is limiting support for the Euro. Meanwhile, the Pound Sterling is performing better, supported by positive UK economic figures, as attention shifts to the upcoming Bank of England meeting. The EUR/GBP pair is currently around 0.8680, up by 0.10%. However, the weak data from Germany is preventing any significant movement. The German IFO Business Climate Index sits at 87.6, below the expected 88.1. While the Current Assessment has improved slightly, the Expectations index has fallen, indicating a fragile economic state in Germany.

Mixed PMI Results

The preliminary Purchasing Managers’ Index (PMI) data shows mixed results. The manufacturing sector shows some improvement but remains in contraction, while the services sector is growing more slowly than anticipated. These results provide little support for the Euro, leading to a muted market response. In the UK, the Pound is stable after a rebound last week, spurred by strong economic data. The S&P Global PMI for January indicates increased activity in the private sector, with the Composite PMI rising to 53.9. Additionally, retail sales rose by 0.4% in December, breaking a trend of monthly declines. Looking ahead, there are few UK economic releases, so focus remains on the Bank of England meeting. Recent talks highlight caution due to ongoing wage growth and inflation issues. The EUR/GBP pair appears stuck, reflecting weak business sentiment in Germany against a more robust UK economic outlook. The market’s limited reaction has reduced 1-month implied volatility to about 5.5%, down from over 7% in late 2025. This situation makes selling options appealing in the short term, such as through an iron condor strategy.

Anticipating the Bank of England Meeting

The key event to watch is the Bank of England meeting in February. With UK private sector activity on the rise and inflation still elevated at 2.8%, well above the 2% target, the BoE may take a more cautious stance than expected. It may be wise to buy relatively cheap volatility, possibly through a long straddle, to prepare for a potential price movement. From a fundamental perspective, the Eurozone appears weak, as shown by stagnating German IFO figures, confirming a slow growth outlook. The Eurozone expanded by only 0.1% in the last quarter of 2025. This ongoing economic weakness supports a longer-term bearish view on the pair. Therefore, bear put spreads could be a cost-effective way to anticipate a downward movement in the coming months. In the short term, the EUR/GBP is likely to trade between 0.8650 and 0.8720, which might benefit option sellers. However, as we approach the BoE decision, it will be prudent to hold options to safeguard against a potential breakout. The differing economic momentum suggests that any sustained breakout is more likely to be downward. Create your live VT Markets account and start trading now.

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