The Euro has slightly improved from its six-week low of about 0.8725 but still sits under 0.8750. This comes despite encouraging data out of the Eurozone. Increased confidence in the Eurozone and a surprising rise in German Industrial Production haven’t significantly boosted the Euro’s value. The December Eurozone Sentix Investors’ Sentiment Index rose to -6.2, up from -7.4 in November. The Current Situation Index climbed to -16.5, and the Economic Expectations Index improved to 4.8 from 3.3 the month before. German Industrial Production unexpectedly increased by 1.8% in October, contrasting with expectations of a 0.4% decline. This follows a 1.1% rise in September. The European Central Bank is showing mixed opinions on possible interest rate hikes. Meanwhile, the UK had a quiet economic calendar during the London session. The Pound saw a slight increase, reacting positively to the UK’s recent budget that raised taxes. The Bank of England (BoE) affects the Pound by managing monetary policy to ensure price stability. It uses interest rates and measures like Quantitative Easing (QE) and Quantitative Tightening (QT). QE tends to weaken the Pound as it involves buying assets to increase credit, while QT strengthens it by selling off those assets. Recall a few years ago when EUR/GBP struggled to break through the 0.8750 mark due to early signs of a strong European economy. That optimistic sentiment feels distant compared to the delicate balance we face today. The ongoing tension between the European Central Bank and the Bank of England’s stance on inflation continues to drive this currency pair. As of December 8, 2025, traders are focused on the possible pace of interest rate cuts as we head into the new year. Recent inflation data shows that the Eurozone’s core Consumer Price Index (CPI) has cooled to 2.8%, while the UK’s remains stubbornly higher at 3.1%. This gap is putting pressure on the EUR/GBP pair, which is staying within a tight range, though there’s underlying support for the Pound. The ECB is expected to signal a rate cut in the first quarter of 2026, especially after last week’s unexpected 0.5% drop in German manufacturing orders. In contrast, recent wage growth in the UK, reported at 4.2%, suggests that the BoE might keep interest rates steady for longer. This difference in policies is currently central to traders’ strategies. Amid this situation, implied volatility for three-month EUR/GBP options has increased from 6.1% to 6.8% over the last two weeks. Derivative traders may consider strategies like buying straddles ahead of next week’s central bank press conferences to profit from any significant movements, whether upwards or downwards. For those expecting a stronger Pound, buying EUR/GBP puts with a strike price around 0.8550 is a cost-effective way to prepare for a possible hawkish shift from the Bank of England. Historical data from 2023-2024 shows that differences in policy often led to quick, sharp drops in this currency pair. This approach provides a defined-risk way to take advantage of potential Sterling strength.

here to set up a live account on VT Markets now