EUR/GBP rose for a second day on Tuesday as the Pound softened, keeping the pair near 0.8700. It traded around 0.8712, still below resistance in the 0.8720 to 0.8745 zone.
Sterling was one of the weakest major currencies this week after reports raised questions about links between the UK ambassador to the US, Lord Mandelson, and Jeffrey Epstein. This has increased political pressure on Prime Minister Keir Starmer. UK shares and government bonds also moved lower.
Technical Picture On EURGBP
On the daily chart, EUR/GBP is near the top of a descending channel that started after the mid-November highs. Momentum signals are slightly positive: the MACD histogram is growing, and the RSI is near 55.
A break above 0.8720, followed by a move above the December 31 and January 21 highs near 0.8745, would suggest a shift in trend. If that happens, traders may focus next on the 0.8800 area, close to December’s peak.
Key support sits at 0.8675, then 0.8612. The technical section was produced with help from an AI tool.
The British Pound is under heavy pressure due to political uncertainty around the Labour cabinet and the Mandelson story. The UK 10-year Gilt yield has risen 15 basis points over the past week to 4.35%. This points to investor nerves and selling in UK government debt. That political risk premium is helping keep EUR/GBP firm, just below a key resistance area.
Options Strategy And Risk Management
For derivatives traders, one possible approach is buying short-dated EUR/GBP call options to position for a breakout. A strike just above 0.8750 could capture upside if the pair breaks through the descending channel highlighted in the technical section. Implied volatility has climbed to a three-month high of 8.2%, so entry timing matters when managing the cost of the option premium.
At the same time, a political breakthrough could quickly lift Sterling and trigger a sharp pullback. During the UK’s 2022 “mini-budget” crisis, sentiment flipped fast after leadership or policy changes. To help manage this risk, traders could consider a hedge using protective GBP call / EUR put options with a strike near the 0.8650 support area.
Sterling weakness is also affecting other pairs. GBP/USD has fallen below the key 1.2500 support level for the first time this year. Next week’s UK inflation report will be important. The January 2026 release showed core inflation still elevated at 3.5%. Any sign that inflation is not easing as expected could complicate the Bank of England outlook and add more uncertainty for the Pound.
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