EUR/GBP is trading around 0.8800, up 0.40% on Tuesday. This move is due to a weaker Pound Sterling ahead of the Bank of England’s (BoE) policy meeting. The BoE is likely to keep its benchmark rate at 4.0%, but a third of market participants expect a possible quarter-point cut, influenced by softer inflation data. UK Chancellor Rachel Reeves is worried about slow inflation reduction. She says her budget will focus on tackling this problem. In Europe, ECB President Christine Lagarde is set to speak, but her remarks are not expected to bring new guidance on monetary policy. Political tensions in France over the rejection of a wealth tax add to market caution, but the focus remains on the BoE. From a technical perspective, EUR/GBP couldn’t break through the 0.8818 resistance level. It has dropped below a rising support line, which is now resistance at around 0.8805. If it breaks this level, it could retest 0.8818 and possibly rise further. Support is at 0.8790; if that level fails, it could target lows near 0.8763 and aim for the 100-period SMA around 0.8730. Since mid-2016, the pair has bounced between 0.8200 and 0.9300. It rebounded from the lower bound in February and is now consolidating near the midpoint. If momentum continues, it could target the upper bound, but the weekly RSI nearing 70 suggests potential consolidation or a pullback. Historical context reveals that the market debated a possible BoE rate cut from 4.0% when EUR/GBP was around 0.8800. During that time of uncertainty, the BoE ultimately raised rates to tackle the inflation Chancellor Reeves warned about. Currently, with the BoE rate at 5.0% and recent UK Q3 2025 GDP growth at just 0.1%, the economic impact of that decision is at the forefront of market attention. Given the UK’s economic slowdown compared to the Eurozone, derivative traders might find value in buying EUR/GBP call options with expirations in early 2026. This strategy anticipates that the BoE may signal rate cuts before the European Central Bank, potentially pushing the pair higher. The risk of an options contract is manageable since the pair is nearing the upper end of its historical range. We should also consider the long-term resistance around 0.9300, a level that has limited gains since the Brexit vote in 2016. Buying protective put options could act as a hedge against any unexpected positive UK economic news or a surprisingly hawkish BoE. This would provide a safety net for any long positions if sentiment towards the Pound changes suddenly. Implied volatility is another important factor to monitor, as differences in central bank policies create uncertainty. The gap between UK and German 2-year bond yields has increased significantly in 2025, highlighting this tension. A long straddle, which involves buying both a call and a put option, would allow traders to profit from large price movements in either direction as markets decide which central bank will change policy first.

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