EUR/GBP traded higher near 0.8725 in early European trade on Wednesday. It moved back above 0.8700 and snapped a three-day decline. The Pound weakened against the Euro ahead of UK political events. European Central Bank President Christine Lagarde is also scheduled to speak later on Wednesday.
A by-election will be held on Thursday in Manchester’s Gorton and Denton constituency to fill a vacant parliamentary seat. The vote comes as UK Prime Minister Keir Starmer faces rising tension within his party and low approval ratings.
Uk Political Risk And Sterling
In the US, the Supreme Court ruled on Friday against many tariffs introduced by President Donald Trump. On Saturday, Trump said he would add a further 15% tariff. On Monday, the European Parliament agreed to delay a vote on the EU–US trade agreement.
Fresh trade tensions could weigh on the Euro, because the Eurozone is more exposed to trade disruption than the UK.
Looking back at 2025, UK politics were a key driver of Sterling weakness. Attention on the Manchester by-election added uncertainty and helped push EUR/GBP above 0.8700. By-elections are often tough for the party in power. Since 2000, ruling parties have lost more than half of these contests.
However, the larger risk is the renewed trade dispute between the US and the European Union. Similar tariff escalation in 2018 helped drive a drop of more than 5% in the Euro in a single quarter. Germany is especially exposed because its economy depends heavily on exports. This risk can limit how far EUR/GBP can rise.
Volatility Outlook And Trading Approach
With these pressures pulling in different directions, the main expectation is higher volatility rather than a clear trend. One-week implied volatility for EUR/GBP is already rising, moving from an average of 5.5% to nearly 8% as traders price in these events. Derivatives traders may therefore look at strategies such as long straddles or strangles. These can profit from a large move either way and may suit a choppy market.
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