EUR/GBP has bounced back from a low of 0.8653 and is currently trading at around 0.8670. This movement follows the Bank of England (BoE) raising rates by 25 basis points to 4.00%, a decision made by a close 5–4 vote. BoE Chief Economist Huw Pill has raised concerns about the pace of rate cuts due to worries about inflation. He highlighted risks that current inflation trends could affect how households and businesses behave. Governor Andrew Bailey also mentioned uncertainty about future rate directions, reflecting some division within the BoE over its policies. The BoE is being careful with rate cuts, while the European Central Bank (ECB) has kept its rates steady, indicating different economic strategies. The ECB’s decision to maintain rates suggests confidence in controlling inflation. However, uncertainties in the global economy continue to impact outlooks. The BoE’s narrow vote for a rate cut shows significant uncertainty for the Pound. This stands in stark contrast to the ECB’s choice to keep rates unchanged, creating a clear policy divergence that we can trade on. This difference points to a potential rise for EUR/GBP in the upcoming weeks. Huw Pill’s worries about inflation are valid, especially since the latest UK Consumer Price Index (CPI) data from July 2025 recorded 2.8%, which is still above the Bank’s target. This persistent inflation suggests the market might be too aggressive in expecting future rate cuts. We think this division within the BoE will prevent any rate cuts at their next meeting in September. The 5–4 vote split indicates increased volatility for GBP currency pairs. We should consider buying options strategies like straddles on EUR/GBP to benefit from significant price movements, taking advantage of the BoE’s internal divisions. Looking at market movements after UK policy changes in late 2022, we know that such uncertainty often leads to profitable volatility. With the ECB’s steady approach and recent Eurozone inflation rates holding steady around 2.5%, the Euro is likely to strengthen against the Pound. Recent market data supports this, with a notable 15% rise in open interest for EUR/GBP call options set to expire in the fourth quarter. We should prepare for a test of the 0.8750 resistance level before the end of September.

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