The EUR/GBP exchange rate is around 0.8665, the lowest since 16 September. Political issues in France are weighing down the Euro. Traders are looking forward to ECB President Lagarde’s speech on Wednesday and the ECB Meeting Accounts on Thursday for clues about economic policies. Although there are political tensions in France, such as Prime Minister Sébastien Lecornu stepping down, the Euro has steadied against the Pound. The British Pound lost some momentum after the Bank of England’s Financial Policy Committee Meeting Minutes showed no changes to financial safety rules.

French Political Uncertainty

The uncertainty in French politics, with Lecornu promising a budget by the end of the year, creates challenges for the Euro. Meanwhile, ECB officials believe in a steady recovery for the Eurozone amid controlled inflation. The Bank of England mentioned potential risks from changing global market valuations. Later on Wednesday, we will hear from ECB’s Lagarde and BoE’s Pill about monetary policy. Thursday’s ECB Meeting Accounts are also important. This week’s UK economic calendar is quiet, making EUR/GBP sensitive to European news and market feelings. The ECB Monetary Policy Meeting Accounts aim to explain financial decisions and enhance public understanding of the economic situation. With EUR/GBP near a three-week low of 0.8665, the main pressure on the Euro stems from the uncertainty in French politics. Any signs of budget deadlock could push the pair lower, so we need to keep an eye on news from Paris. This instability makes short-term bets on the Euro risky. Recall how political issues in France in mid-2024 led to a widening spread between French and German 10-year government bonds, signaling risk. Currently, this spread has increased by about 15 basis points in the past week, indicating returning market nervousness. With Eurozone inflation last reported at a benign 1.9%, the ECB has little reason to support the Euro aggressively.

Two-Sided Risk

However, the Pound isn’t a safe option either, as the Bank of England’s committee noted risks from high global equity valuations. The S&P 500 has risen over 8% in the last quarter, so a sharp correction in the US could weaken the Pound and lead to capital moving back into the Euro. UK inflation also remains higher than in the Eurozone, reported at 2.4% last month, complicating the BoE’s position. Given this two-sided risk, we should consider trading strategies that take advantage of expected volatility rather than simple directional bets. Buying straddles on EUR/GBP could let us profit from significant movements in either direction—whether the Euro falls due to French fiscal issues or rallies if a budget deal is reached. The low price of the currency pair may make call options a cheap way to prepare for positive surprises. Our immediate focus is on the upcoming events this week. We’ll analyze ECB President Lagarde’s speech later today for any signs of a shift from the usual narrative. Tomorrow’s ECB Meeting Accounts will be even more crucial, as we’ll look for any internal disagreements or specific concerns about the situation in France. Create your live VT Markets account and start trading now.

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