Insights 
VT 
EUR/GBP has dipped below 0.88 once more, as GBP/USD finds demand under 1.31. There is belief that the possibility of a 25 basis point rate cut by the Bank of England in December is underestimated. Current market predictions suggest a 60% chance of this rate cut taking place.
September wage data is anticipated to decelerate, potentially increasing the Bank of England’s confidence that inflation is less persistent. This data may influence their monetary policy decisions. Should EUR/GBP fall to 0.8750/60, strong demand is expected at that level. Levels above 0.88 are currently preferred.
Looking Back At Interest Rate Cuts
Looking back, the sentiment was that the pound was set to weaken because the market was underestimating the chance of a Bank of England rate cut. This view was based on the expectation that September 2025’s wage data would show a slowdown, giving the central bank reason to act. That slowdown was indeed confirmed when the data released in October showed wage growth falling to 5.2% from 5.8%.
This perspective was validated when the Bank of England did cut its key interest rate by 25 basis points later in 2025, pushing EUR/GBP towards the 0.8900 level. We have since seen UK inflation cool further, with the latest October 2025 figures showing the Consumer Price Index at 2.8%, moving closer to the Bank’s 2% target. This confirms that inflationary pressures, which were a major concern in 2023 and 2024, are now easing more rapidly.
Market Predictions For 2026
Now, attention is shifting to the likelihood of further easing in early 2026, as the UK economy shows signs of slowing. Derivatives markets are currently pricing in a nearly 70% probability of another rate cut by the end of the first quarter. This suggests that the path of least resistance for the pound remains downwards against the euro.
For the coming weeks, we see value in positioning for continued sterling weakness, especially as the narrative of further rate cuts solidifies. Derivative traders could consider buying EUR/GBP call options with a strike price around 0.8950 for a January 2026 expiry. This strategy allows for defined risk while capturing potential upside if the pair continues its upward trend driven by diverging central bank policies.
