EUR\/GBP stabilised on Friday after a four-session sell-off that drove the cross to a one-year low, with the euro edging ahead in a tight range. The pair was around 0.8571 at the time of writing and was heading for a second straight weekly decline, as markets continued to price a weaker euro backdrop.<\/p>\n
The single currency has been pressured by diminishing expectations of further European Central Bank tightening after softer inflation readings. Eurozone HICP eased to 2.8% year-on-year in June from 3.2% in May, and core HICP slowed to 2.4% from 2.6%, while Deutsche Bank pegged the probability of an ECB hike by September below 50% and put the chances of a move by December at about 70%. Activity data were mixed: the HCOB Eurozone Composite PMI rose to 50.0 in June from 48.5, whereas the S&P Global UK Composite PMI Output Index slipped to 49.3 from 49.7, staying under 50.0 for a second month; the expected ECB\u2013Bank of England rate gap remained supportive for sterling.<\/p>\n
With EUR\/GBP consolidating near 0.8571 after hitting a one-year low, we see an opportunity based on diverging central bank policies. The fundamental driver remains the interest rate difference between the European Central Bank and the Bank of England. This gap is likely to favor the Pound in the near term.<\/p>\n
The recent slowdown in Eurozone inflation to 2.8% has taken pressure off the ECB to consider another rate hike. Data released on June 29th showed German inflation, a key metric for the bloc, also fell to 2.5%, reinforcing the view that the ECB’s hiking cycle is over. This contrasts sharply with the situation in the United Kingdom.<\/p>\n
Meanwhile, the Bank of England is holding firm, with UK inflation for May remaining elevated at a stubborn 3.5%, well above its target. Governor Bailey’s comments that rate cuts are “off the table” cement the expectation that UK rates will stay higher for longer. This policy divergence is the central pillar of our view.<\/p>\n
Considering this, we should look at buying EUR\/GBP put options with expirations in late July or August 2026. This allows us to position for a further decline with a defined risk limited to the premium paid. A strike price around 0.8550 would capture a break of the recent lows.<\/p>\n
This trade aligns with current market sentiment, as recent CFTC data shows speculative traders have been increasing their net-long positions in the British Pound. At the same time, bullish bets on the Euro have been consistently reduced over the past month. We are essentially following the money flow here.<\/p>\n
The key level to watch is the recent low around 0.8560; a decisive break below this could open the door to the 0.8500 level, which acted as significant support in the summer of 2025. However, we must remain mindful of the weak UK PMI data, as any further deterioration in the UK economy could force the Bank of England to soften its stance.<\/p>\n\n\n\n