EUR/GBP traded near 0.8740 in Asian hours on Monday, after recovering losses from the prior session. Germany’s IFO Business Climate survey for February is due later in the day.
The pair was little changed as the euro and pound both rose against the US dollar after the US Supreme Court ruled that tariffs imposed under the IEEPA were unlawful without Congressional approval. Donald Trump later signalled plans for a new 15% global tariff using other trade laws, while US officials said they would seek alternative legal grounds to keep existing tariffs.
Trade Policy Uncertainty In Focus
In Europe, the European Parliament’s trade chief said the EU would propose suspending ratification of its trade agreement with the US until it receives clearer guidance on US trade strategy, according to Bloomberg. The report added to uncertainty around trade policy.
UK data supported the pound, with January Retail Sales up 4.5% year-on-year versus forecasts of 2.8%. February S&P Flash PMI data showed expansion in both services and manufacturing.
Softer UK labour market data increased expectations of further Bank of England easing after the unemployment rate rose in Q4 2025. Markets price a 75% to 80% chance of a 25-basis-point rate cut at the March meeting.
We see the EUR/GBP pair in a tight range as conflicting forces pull on both currencies. The Pound is getting a boost from strong recent economic numbers, but this strength is being capped by the overwhelming expectation of a Bank of England rate cut next month. This tension between positive current data and negative future policy creates an uncertain environment for traders.
Strategy Ideas For The March Boe Meeting
Looking at the Pound, we note the impressive 4.5% year-over-year surge in January retail sales and expanding business activity shown in the February flash PMIs. However, the market seems more focused on the Bank of England, especially after we saw unemployment rise to 4.2% in the fourth quarter of 2025. With money markets pricing in an almost 80% chance of a rate cut in March, any GBP strength could be short-lived.
On the other side, the Euro is navigating its own challenges, primarily stemming from trade policy uncertainty with the United States. The upcoming German IFO Business Climate survey will be a key indicator for sentiment in the Eurozone’s largest economy, with a reading below the recent 85.5 level potentially weighing on the Euro. The EU’s stance on pausing the US trade agreement ratification adds another layer of risk that could limit the Euro’s upside.
Given this high uncertainty and the major Bank of England event risk in March, we believe buying volatility is a prudent strategy. Traders could look at purchasing EUR/GBP straddles or strangles with expirations after the March policy meeting. This approach would be profitable if the pair makes a significant move in either direction, whether the BoE cuts rates as expected or surprises the market.
For those with a directional bias, the probable BoE rate cut suggests a move higher in EUR/GBP as the Pound weakens. A limited-risk way to play this is through buying call options on the pair. This allows traders to capitalize on a weaker Pound while capping potential losses to the premium paid if the recent strong UK data unexpectedly causes the Bank of England to hold rates steady.
The broader backdrop of a shifting US trade policy is also impacting capital flows. The proposed 15% global tariff by the Trump administration has weakened the US Dollar, lending support to both the Euro and the Pound. This could cause EUR/GBP to remain in a choppy range, as both currencies may strengthen in unison against the dollar, reinforcing the case for volatility-based strategies rather than simple directional bets.
