The Euro is holding steady after the French government survived two no-confidence votes. The British Pound is getting slight support from modest growth but is dealing with financial concerns. The political stability in France has helped improve market sentiment for the Euro.

Current Market Position

As of Friday, the EUR/GBP exchange rate is around 0.8700, benefiting from positive sentiment after French Prime Minister Sébastien Lecornu overcame two no-confidence challenges in parliament. This situation has helped stabilize the Euro against the British Pound. In the UK, the economy experienced a slight uptick, with GDP growing by 0.1% month-on-month in August, following a 0.1% decline in July. Industrial Production rose by 0.4% month-on-month, suggesting a small recovery in manufacturing. However, upcoming tax increases in the Autumn Budget may hurt domestic spending. Eurozone inflation data shows that price pressures remain stable but are above target. The Harmonized Index of Consumer Prices (HICP) rose 2.2% year-on-year in September, while core inflation is at 2.4%. The European Central Bank has indicated that there is little room for further rate cuts. Overall, the current situation favors the Euro, keeping the EUR/GBP exchange rate steady around 0.8700. Today, the Euro is showing the most strength against the British Pound, with a slight change of 0.06%. With French political risks easing for now, it looks like the EUR/GBP could either move sideways or go higher. The main factor is the stable outlook in the Eurozone compared to increasing financial pressure on the UK. This means any dips in the exchange rate towards 0.8650 may attract buyers.

Future Strategies

The upcoming UK Autumn Budget is a significant worry, as planned tax increases could hurt consumer spending. The UK’s public debt-to-GDP ratio is expected to remain around 93% throughout 2024, a historically high level that restricts the government’s financial options. This backdrop makes it hard to be optimistic about the British Pound compared to a more stable Euro. In the Eurozone, inflation is stubbornly above the European Central Bank’s 2% target, making interest rate cuts unlikely soon. The ECB has maintained its main policy rate for several meetings, giving a solid yield advantage that supports the Euro. This stance provides a supportive floor for the EUR/GBP exchange rate. Given this outlook of limited downside and slight upside, traders might consider a bull call spread on EUR/GBP. Buying a November 2025 call option with a 0.8725 strike while selling a 0.8825 call could be a cost-efficient way to bet on a gradual rise. This strategy will profit if the exchange rate exceeds 0.8725 by expiration. Alternatively, for those who believe the exchange rate will remain stable, selling an out-of-the-money put spread could be a good option. Selling a November 2025 0.8650 put while buying a 0.8550 put for protection would generate income if EUR/GBP stays above 0.8650. This aligns with historical price action, as the mid-0.8600s have provided strong support throughout the past year. Create your live VT Markets account and start trading now.

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