The Euro has gained value against the Pound due to a shift in the Bank of England’s (BoE) policy. The BoE decided to keep its Bank Rate at 4% after a close 5-4 vote, with four members pushing for a 25-basis point cut. The Euro-Pound exchange rate is now about 0.8808, which is a 0.20% rise. This suggests that the Euro might enjoy its third weekly gain against the Pound.

Bank Of England Policies

BoE Governor Andrew Bailey mentioned that inflation is easing faster than expected. This implies that the current strict policies might not stay in place for long. The UK Budget on November 26 might also affect the value of Sterling, as possible tax hikes and limited spending are anticipated. On the other hand, the European Central Bank (ECB) kept its deposit rate steady at 2% on October 30, following a data-driven approach. President Christine Lagarde noted that the ECB’s policy is well-positioned, though changes might come if inflation or growth trends shift. The differences in monetary policy between the ECB and BoE continue to shape the Euro-Pound exchange rate. While the BoE hints at loosening its policies, the ECB remains steady, reflecting different economic strategies. Currently, the US Dollar is weak against the Yen and shows mixed results against major currencies like the Euro, Pound, and Canadian Dollar.

Market Reactions

The recent dovish shift by the Bank of England has created a clear gap compared to the European Central Bank. The close 5-4 vote to maintain rates, with a majority wishing for an immediate cut, suggests the Pound may continue to decline. This stands in contrast to the ECB’s consistent and cautious approach. Recent economic data supports this outlook. UK Consumer Price Index inflation has dropped to 3.1%, falling quicker than expected, while third-quarter GDP figures show a slight decrease of 0.1%. These statistics may encourage the Bank of England to start lowering rates early in 2026. Meanwhile, the Eurozone’s economy has shown some resilience, with 0.2% growth in the last quarter. However, HICP inflation remains sticky, with the latest reading for October 2025 at 2.8%, preventing the ECB from indicating any imminent easing. This widening gap in economic performance and inflation expectations favors a stronger Euro compared to the Pound. For derivative traders, this trend suggests betting on a higher EUR/GBP exchange rate in the coming weeks and months. Purchasing EUR/GBP call options with early 2026 expirations could be a smart strategy to capitalize on this expected movement while controlling risk. The upcoming UK Budget on November 26 could further weaken Sterling if it hints at fiscal tightening. Market trends reflect this shift, as seen in interest rate swaps. The Overnight Index Swaps market currently shows an 80% likelihood of a 25 basis point cut by the BoE by February 2026. In contrast, the markets aren’t predicting a similar move from the ECB until at least the third quarter of 2026. We have seen a similar pattern before, such as after the 2016 Brexit referendum, when the Bank of England’s aggressive policy easing led to a sharp decline in the Pound’s value. The current situation, with a divided policy committee leaning towards cuts, mirrors that historical instance of Sterling weakness. Create your live VT Markets account and start trading now.

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