EUR/GBP rose to around 0.8720 on Thursday, up 0.13% on the day. The move came as Sterling weakened again due to UK political uncertainty. The Euro was more stable, even though Eurozone inflation was softer.
In the UK, attention is on the Gorton and Denton by-election. Markets see it as a test for Prime Minister Keir Starmer. A weak result for Labour could spark new leadership talk and increase currency swings.
Uk Politics In Focus
Sterling also came under pressure as markets moved closer to expecting Bank of England rate cuts. Traders are pricing a possible cut as soon as March, as the labour market cools and inflation eases.
UK CPI inflation fell to 3% year on year in January, down from 3.4% in December. MPC member Alan Taylor said two to three rate cuts may be needed in the near term, while also warning that services inflation still poses risks.
In the Eurozone, annual inflation slowed to 1.7% in January, the lowest since September 2024. Christine Lagarde told the European Parliament that inflation is moving toward the 2% target and that policy will remain data-driven.
Overall, the ECB message suggests a pause, even as Eurozone Economic Sentiment fell in February. Markets are also watching German inflation data due Friday, along with further UK political headlines.
Trading Strategy Considerations
The Pound’s weakness is creating opportunities as EUR/GBP trades near 0.8720. This move is driven more by UK uncertainty than by Euro strength. For the next few weeks, UK politics and expectations of a BoE cut look like the main drivers.
The Gorton and Denton by-election is a key event. Recent YouGov polling shows Labour’s lead has narrowed to just 2 points, down sharply from the double-digit gap seen in the 2024 general election. This is raising implied volatility in Sterling. For traders, that can make options strategies that benefit from bigger price swings more attractive.
SONIA futures now price an 85% chance of a 25-basis-point BoE cut at the March 20 meeting, supported by the drop in UK inflation to 3% last month. This is a major change from late 2025, when many expected rates to stay higher for longer. This more dovish outlook is keeping steady downward pressure on Sterling.
By contrast, the European Central Bank looks set to stay on hold. Money markets price less than a 20% chance of an ECB cut before summer. This policy gap is a key reason the Euro is holding up better against the Pound. Still, the Euro’s upside against other currencies may be limited, especially after the German IFO Business Climate index unexpectedly fell to 85.2.
With this backdrop, traders may look for further EUR/GBP upside. Buying call options or using bull call spreads can provide exposure to more Sterling weakness with defined risk. Rising political risk may also support long-volatility strategies if an unexpected election result triggers a sharp move.
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