The EUR/GBP cross maintains a positive trading stance above 0.8700 as political turbulence in France subsides. The Euro gains ground against the Pound Sterling following the French government’s survival of no-confidence votes. Anticipation builds for upcoming speeches from Bank of England officials, Huw Pill and Megan Greene.

French Political Stability and Economic Indicators

French Prime Minister Sebastien Lecornu overcame two no-confidence votes, alleviating political instability in France and offering support to the Euro. However, the Pound may be buoyed by emerging signs of recovery in the UK manufacturing sector and modest GDP growth. The Autumn Budget, potentially involving tax hikes, looms ahead.

The UK’s economy expanded by 0.1% MoM in August, aligning with forecasts, following a 0.1% contraction. Industrial Production also improved by 0.4%, surpassing expectations. The Eurozone utilises the Euro, a heavily traded currency that dominates 31% of foreign exchange transactions as of 2022.

The European Central Bank (ECB) influences the Euro’s value through interest rate adjustments. Key economic metrics, including inflation and GDP data from major Eurozone economies like Germany and France, dictate policy and impact currency strength. A positive Trade Balance bolsters currency value by attracting foreign income.

We recall that back in late 2023, EUR/GBP found support above 0.8700 partly because a political crisis in France had temporarily eased. That specific political risk has long since faded from the market’s memory. The fundamental drivers for the pair have now shifted firmly back to central bank policy divergence.

ECB and Bank of England Policy Divergence

The Euro is finding support from a European Central Bank that remains worried about inflation. Eurozone Harmonized Index of Consumer Prices (HICP) for September 2025 came in at a stubborn 2.8%, which is keeping the ECB from signaling any rate cuts. This contrasts with the situation two years ago, when rate hikes were still in full swing across the globe.

Meanwhile, the UK’s economic picture is looking different, as the tax hikes from the budgets of 2023 and 2024 have dampened consumer activity. The latest UK Consumer Price Index (CPI) reading for September 2025 fell to 2.5%, moving closer to the Bank of England’s target. This has led to a noticeable split in the Monetary Policy Committee, with some members now openly discussing the timing for future rate cuts.

For derivative traders, this growing divergence suggests positioning for further strength in EUR/GBP. The ECB’s hawkish stance compared to the Bank of England’s softening outlook creates a clear upward pressure on the currency pair. We believe buying call options with strike prices around 0.8750 for the coming months offers a limited-risk way to capitalize on this trend.

Looking ahead, traders should watch the upcoming flash Manufacturing and Services PMI data for October 2025. If UK economic activity shows further signs of slowing while the Eurozone remains resilient, it will reinforce the case for a weaker Pound. This would likely push the EUR/GBP exchange rate through the resistance levels we have seen throughout this year.

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