EUR\/GBP stayed range-bound on Monday below 0.8750 after repeated rejections near that level. It traded around 0.8736, with the Pound modestly stronger than the Euro.<\/p>\n
Germany\u2019s IFO Business Climate Index rose to 88.6 in February versus 88.4 forecast, up from 87.6 in January. The Current Assessment Index increased to 86.7 versus 86.1 forecast, from 85.7, while the Expectations Index was 90.5, in line with forecasts and up from 89.6.<\/p>\n
Markets remained cautious ahead of Tuesday\u2019s Eurozone inflation data and Germany\u2019s fourth-quarter GDP release. Eurozone core HICP is forecast at 2.2% year-on-year in January, down from 2.3% in December, while headline HICP is forecast to hold at 1.7%.<\/p>\n
Preliminary inflation figures from Germany, France and Spain are due later this week. Expectations in markets point to the ECB keeping policy unchanged through the year.<\/p>\n
In the UK, markets are pricing in possible Bank of England rate cuts as early as March after softer inflation and weaker employment data. BoE policymaker Alan Taylor said there are \u201ctwo or three more cuts to go before reaching a neutral rate\u201d, and noted weaker productivity growth as a risk.<\/p>\n
The UK calendar is light this week, leaving EUR\/GBP mainly driven by Eurozone releases and wider sentiment.<\/p>\n
Looking back at early 2025, we recall EUR\/GBP being stuck in a range below the 0.8750 resistance level as traders weighed central bank policy. That key level remains a significant psychological barrier, even as the pair currently trades lower around 0.8680. The dynamics, however, have changed considerably since last year.<\/p>\n
The expectation in 2025 was for Eurozone inflation to ease, but the opposite has occurred. The latest flash estimate for January 2026 showed Eurozone Core HICP unexpectedly rising to 2.9%, well above the European Central Bank’s target. This has forced the ECB to adopt a more hawkish tone, a stark contrast to their neutral stance at this time last year.<\/p>\n
Meanwhile, the Bank of England, which was expected to cut rates aggressively in 2025, is now on hold. After a series of cuts last year, recent UK inflation has proven sticky, holding at 2.5% in the latest reading. This has paused any further dovish action from the BoE as they wait for more conclusive data.<\/p>\n
This new policy divergence, with a hawkish ECB and a neutral BoE, is theoretically more supportive for the Euro than the situation we saw in 2025. However, the cross has failed to rally convincingly, indicating underlying weakness or skepticism in the market. This suggests option traders should look at strategies that benefit from a potential breakout.<\/p>\n
The primary headwind for the Euro appears to be the persistent weakness in the German economy. We recently saw that German GDP contracted by 0.2% in the final quarter of 2025, continuing a trend of industrial stagnation. This puts the ECB in a difficult position of having to fight inflation while its largest economy struggles.<\/p>\n
Given this conflict between hawkish monetary policy and a weak economic outlook, implied volatility is likely to increase ahead of key data releases. We believe buying volatility through straddles or strangles could be a prudent strategy. This would allow traders to profit from a significant price move in either direction, which seems more likely than continued sideways trading.<\/p>\n
Create your live VT Markets account<\/a>\u00a0and\u00a0start trading<\/a>\u00a0now. <\/b><\/p>\n","protected":false},"excerpt":{"rendered":" EUR\/GBP hovered near 0.8736, capped below 0.8750, as markets awaited Eurozone inflation and GDP.<\/p>\n","protected":false},"author":62,"featured_media":17035,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[59],"tags":[],"class_list":["post-42586","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-live-updates"],"acf":{"acf_article_selection_author":null},"aioseo_notices":[],"_links":{"self":[{"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/posts\/42586","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/users\/62"}],"replies":[{"embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/comments?post=42586"}],"version-history":[{"count":0,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/posts\/42586\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/media\/17035"}],"wp:attachment":[{"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/media?parent=42586"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/categories?post=42586"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/tags?post=42586"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}