The Bank of England’s unexpected dovish stance has shifted market expectations towards potential rate cuts. Political pressures could delay this easing cycle.
There is speculation that EUR/GBP will find support at 0.8670/80, with a potential bias towards 0.88 in the next month. Political pressures remain on Starmer, and ongoing data may support a BoE rate cut in March.
Bank Of England’s Dovish Stance Shifts Market Expectations
The Bank of England has unexpectedly shifted to a more dovish stance, signaling that interest rate cuts could be on the horizon. This has altered market sentiment, and we now see plenty of room for Sterling to take the strain. Derivative traders should prepare for increased volatility and a weaker pound in the near term.
This policy pivot is a significant change from the firm, hawkish approach we saw for most of 2025. Current overnight index swaps now show the market is pricing in a 75% chance of a 25-basis-point rate cut by the March meeting. This sentiment was reinforced by last week’s inflation figures, which showed CPI falling to 2.1% and easing pressure on the central bank.
Traders Should Monitor EUR/GBP Pair
In the coming weeks, traders should watch the EUR/GBP pair for opportunities. We see strong support forming in the 0.8670/80 range, which could serve as a solid entry point for long positions. Strategies such as buying EUR/GBP call options could be an effective way to gain exposure to the pound’s expected weakness.
Our bias is for EUR/GBP to climb towards the 0.8800 level over the next month. Political pressure on the Starmer government to ease the cost-of-living burden is mounting, making a rate cut seem increasingly likely. This backdrop favors trades that benefit from a rising EUR/GBP exchange rate.
