The euro stayed under 0.8650 against sterling on Tuesday, extending a soft tone after two sessions of declines. Eurostat’s flash read showed Eurozone HICP inflation at 3.2% year on year in May, up from 3.0% in April, while core HICP rose to 2.5% from 2.2% and above the 2.4% consensus. Markets continued to price an ECB move next week, with the rate outlook little altered by the data.
Sterling held firmer as domestic politics appeared steadier after Prime Minister Keir Starmer resisted calls to resign following May’s local-election result. UK credit data were mixed: Consumer Credit eased to £1.86bn in April from an upwardly revised £1.90bn, while Mortgage approvals rose to 65.94K from 63.97K against expectations of a modest decline. Net Lending to Individuals fell to £6.2bn from £8.7bn, and the pound showed limited reaction to the release.
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Eurozone Data And ECB Expectations
The Euro appears weak against the British Pound, struggling to move above the 0.8650 level. Even though Eurozone inflation is heating up, the market has already fully anticipated a 25-basis-point rate hike from the European Central Bank (ECB) next week. This means the news failed to give the Euro any new strength.
We see the interest rate difference between the UK and the Eurozone as a key factor supporting the Pound. As of early June 2026, the Bank of England’s main interest rate sits at 5.25%, significantly higher than the ECB’s 4.00%; even with the expected ECB hike, this gap will remain attractive for investors holding Sterling. UK wage growth, which is currently running hotter than in the Eurozone at an annual rate over 5.5%, also gives the Bank of England a reason to keep rates higher for longer.
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UK Resilience And EUR/GBP Outlook
Political stability in the UK is also helping the Pound, as Prime Minister Keir Starmer’s government appears to have weathered recent challenges. This reduces uncertainty, which markets tend to reward with a stronger currency. The UK economy is showing some resilience, with mortgage approvals recently beating expectations, suggesting a stable housing market.
Given this backdrop, we believe positioning for further EUR/GBP weakness makes sense in the coming weeks. Derivative traders could consider buying put options on the Euro against the Pound. This strategy allows for profiting from a downward move in the exchange rate while clearly defining the maximum risk.
Looking back, periods of widening interest rate differentials have often pushed the EUR/GBP pair lower. A break below the 0.8500 level has historically opened the door for a more significant decline. We see this as a potential target if the ECB’s upcoming meeting signals that this hike might be one of its last for a while.
