Rabobank predicts that the strength of the pound may decrease. They expect the euro to pound exchange rate to be around 0.87 soon and to rise to 0.88 in six months. In November, the Bank of England is likely to cut interest rates again, which could weaken the pound’s recent gains.

UK Inflation and Wage Growth

Rabobank points out that inflation and wage growth in the UK are still high. This situation raises concerns about stagflation, which might make investors less interested in the pound. Signs suggest that the pound’s recent strength is fading. Although UK economic growth meets forecasts, ongoing high inflation and wage increases are causing fears of stagflation. This combination may lead investors to be cautious about holding sterling in the near future. Recent data backs this up. In July 2025, consumer price inflation stood at 3.4%, well above the Bank of England’s target of 2%. Additionally, Q2 2025 showed GDP growth at just 0.1%, indicating a stagnant economy. This context makes it hard for the pound to continue its gains. We expect the Bank of England to cut interest rates again in November to support the weak economy. A rate cut would likely weaken the pound further, leading to a quicker decline. This expectation is already affecting currency markets.

Derivative Trading Strategies

For those trading derivatives, this outlook suggests plans for a weaker pound compared to the euro. Traders might consider strategies like buying EUR/GBP call options or using long positions in EUR/GBP futures to benefit from this anticipated decline. The near-term target for EUR/GBP is around 0.87 within the next one to three months. Looking back at 2022-2023, a similar situation occurred when high inflation and a slowing economy created challenges for sterling. This history shows how quickly the market sentiment can shift against the pound when stagflation risks become a focus. It highlights the potential for a significant rise in EUR/GBP. In the longer term, reaching 0.88 in the next six months seems possible, but traders should keep a close eye on upcoming inflation and employment reports. Any data hinting at a November rate cut could drive the EUR/GBP exchange rate higher. These reports will offer key chances to adjust positions. Create your live VT Markets account and start trading now.

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