The Pound Sterling is facing ongoing challenges as we near 2026. The UK is experiencing slow growth, and the Bank of England is in an easing phase. Political instability and expectations from the European Central Bank suggest that the EUR/GBP rate could gradually rise, potentially hitting 0.89 in the next six months. Despite some relief from the UK’s November budget, the economic situation for the Pound remains tough. The UK still struggles with stagnant growth, and the Bank of England is one of the few central banks in the G10 that is currently lowering rates.

Potential Political Risks

Political changes are also risky. The Labour party’s budget seems focused on satisfying its left-wing members, revealing possible weaknesses in UK leadership, particularly for Rebecca Reeves and Prime Minister Starmer. At the same time, expectations for rate increases from the ECB are pushing the EUR/GBP rate higher. However, Germany’s slow reform progress and weak growth might lessen this effect. Overall, we expect the EUR/GBP rate to climb to 0.89 in the next six months. Given the challenges the pound will face heading into 2026, it may be wise to prepare for a weaker sterling. Consider taking long positions in EUR/GBP, possibly using call options or futures contracts. This strategy could help us benefit from the expected rise in the currency pair over the coming months.

Strategic Financial Positioning

This outlook is backed by the UK’s stagnant growth. Recent data from the Office for National Statistics shows the GDP was flat at 0.0% for the third quarter of 2025. Additionally, with markets predicting a 70% chance of another rate cut by March 2026, the Bank of England’s easing stance puts it among the few G10 central banks still lowering borrowing costs. On the flip side, the potential for the European Central Bank to raise rates supports the EUR/GBP trend. Persistent core inflation in the Eurozone, recorded at 3.1% in November 2025, is pressuring policymakers to act. This clear difference in monetary policy between the UK and the Eurozone is a major factor behind our perspective. Political uncertainty in the UK is another concern. The tone of the November budget hints at possible instability within the government. A similar divergence in the past, between BoE and ECB policies, led to prolonged weakness of the sterling against the euro. History suggests that the EUR/GBP rate may continue to rise towards 0.89 over the next six months. Create your live VT Markets account and start trading now.

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