EUR\/GBP ticked higher on Thursday but stayed uneven, with the pair near 0.8726 and close to one-month highs. Volatility remained elevated as Middle East tensions supported the euro more than the pound.<\/p>\n
US President Donald Trump said military operations against Iran would continue, with no end date given. This raised concerns about disruptions via the Strait of Hormuz and kept oil prices high.<\/p>\n
Higher oil prices add to inflation pressure and can slow growth, which may keep monetary policy tight. Markets are pricing in 2-3 rate rises from both the ECB and the BoE.<\/p>\n
Both the eurozone and the UK rely on imported energy and are exposed to an energy shock. The eurozone\u2019s inflation is moving closer to the ECB\u2019s 2% target, while UK inflation remains well above the BoE\u2019s 2% target alongside weaker labour data and slower growth.<\/p>\n
ECB officials urged caution on rates, citing changing conditions and energy-market risks to inflation, growth, and financial stability. The BoE Governor said markets may be moving too fast in pricing rate increases and pointed to a focus on inflation expectations.<\/p>\n
ING reported that EUR\/GBP moves have tracked rate differentials and set a 0.8800 target. It also said UK growth is expected to take the largest hit among OECD economies from the energy shock.<\/p>\n
Looking back at this time last year, we saw how Middle East tensions were creating a choppy but upward bias for EUR\/GBP. The market was correctly identifying the Euro’s relative safety over the Pound during this energy price scare. This initial move toward the 0.8726 level was a clear signal of the UK’s specific vulnerability.<\/p>\n
The underlying logic proved sound as we moved into late 2025, with UK inflation remaining stubbornly above 9% while the Eurozone’s HICP figure started to ease towards 8.5%. This divergence confirmed that the UK’s inflation problem was more entrenched, putting the Bank of England in a much tougher position. Derivative pricing correctly began to reflect a higher terminal rate for the ECB compared to what the BoE could realistically deliver.<\/p>\n
We saw this play out in the UK’s economic data, with Q4 2025 GDP figures later showing a contraction of 0.2%, confirming the economy was already stalling. This weakness gave credibility to Governor Bailey’s cautious comments, meaning traders should have been skeptical of the market pricing for multiple BoE hikes. Options strategies that bet on a lower peak for the BoE’s base rate, such as buying call spreads on SONIA futures, would have been profitable.<\/p>\n
Given this backdrop, increased volatility in EUR\/GBP was a given, making long positions through vanilla call options attractive to cap downside risk. The forecast for EUR\/GBP to target 0.8800 was not only met but exceeded by early 2026 as the rate differential story dominated. Traders who positioned for this move by buying the cross or using bullish risk reversals saw significant gains as the Pound’s economic woes deepened.<\/p>\n
From our current perspective today, the factors that drove the cross higher last year are still partially in place. While oil prices have stabilized, the divergence in economic recovery between the Eurozone and the UK persists. Therefore, traders should watch for any signs that the Bank of England will be forced to cut rates before the ECB, which could propel EUR\/GBP towards the 0.9000 level.<\/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 one-month highs as Middle East tensions, oil risks and rate expectations drove volatility.<\/p>\n","protected":false},"author":103,"featured_media":17036,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[59],"tags":[],"class_list":["post-46256","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\/46256","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\/103"}],"replies":[{"embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/comments?post=46256"}],"version-history":[{"count":0,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/posts\/46256\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/media\/17036"}],"wp:attachment":[{"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/media?parent=46256"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/categories?post=46256"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/tags?post=46256"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}