**The Euro’s Advantage** EUR/GBP is making small gains, trading around 0.8735 in the early European session on Tuesday. The Bank of England is expected to lower interest rates by 25 basis points to 3.75% next week due to weak labor market conditions in the UK. Concerns over UK taxes following the autumn budget, along with slowing inflation, suggest that the BoE may shift policies, impacting the GBP. Currently, there is a 90% chance of a 25 basis point rate cut at the BoE’s upcoming meeting in December, marking the sixth cut since August 2024. The Euro is benefiting from positive data from Germany, where Industrial Production rose by 1.8% in October, exceeding expectations. Moreover, Eurozone Sentix Investor Confidence improved to -6.2, which may support the Euro against the GBP. Market speculation indicates that the European Central Bank may have finished cutting interest rates, potentially boosting the Euro. Financial markets expect stable rates at the next meeting, with lowered expectations for cuts in 2026. ECB board member Isabel Schnabel has mentioned the possibility of future rate hikes. **The Importance of Diverging Policies** The Pound Sterling is the oldest currency and accounts for 12% of global foreign exchange transactions. The BoE influences the value of the GBP through its interest rate decisions, which are based on inflation targets that affect economic growth. Economic indicators and trade balance figures also play a vital role in the strength of the GBP. The key factor for us right now is the clear split in policies between the Bank of England and the European Central Bank. The BoE is easing monetary policy, and markets anticipate a 90% chance of another rate cut next week, creating pressure on the Pound Sterling. Recent data releases confirm economic weakness in the UK, aligning with the BoE’s dovish stance. The Office for National Statistics recently reported that the UK unemployment rate rose to 4.5% for the three months ending in October 2025. Additionally, consumer price inflation fell to a two-year low of 2.3% in November, further justifying potential rate cuts. In contrast, the Eurozone seems to be on a stable footing, which should support the Euro. German Industrial Production figures outperformed expectations, and the ZEW Economic Sentiment survey has increased for four consecutive months. This indicates that the ECB is likely not on the same rate-cutting path as the BoE, especially as board members signal potential rate hikes. For derivative traders, this sets the stage for potential upside for EUR/GBP in the coming weeks. We suggest buying EUR/GBP call options that expire in January 2026 to make the most of the upcoming BoE meeting. This strategy allows us to target a potential rise towards the 0.8800 level while clearly managing our risk. This situation represents a significant shift from 2024 when most central banks were keeping rates high together. At that time, opportunities for cross-currency trades based on monetary policy differences were limited. Now, with a cutting BoE and a stable ECB, there is a clearer direction for the EUR/GBP pair. Create your live VT Markets account and start trading now.

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