The euro was steady against sterling on Wednesday, with EUR/GBP hovering around 0.8540 after two sessions of declines. Sterling earlier touched a two-week high but pared gains after Germany’s CPI data, which pointed to sticky inflation in July. The cross has stayed below its weekly starting point as traders position for Thursday’s preliminary UK GDP report.
The Bank of England kept its key rate at 3.75% at its early-July meeting, although three of nine MPC members backed a 25 basis-point rise, citing upside inflation risks linked to higher energy prices and the Middle East conflict. UK growth is forecast at 0.4% QoQ for the three months to June, easing from 0.6% in Q1, while the annual rate is seen at 1.1% versus 0.9% in March. On the charts, EUR/GBP remains below the 20-period SMA at 0.8551 and the 100-period SMA at 0.8554; RSI sits near 39, with resistance clustered at 0.8541 and 0.8545 and support at 0.8534 then 0.8532.
Volatility Expected on UK GDP Release
With the preliminary UK GDP release scheduled for tomorrow, August 13, we expect immediate volatility in the EUR/GBP pair, which currently hovers near the critical 0.8540 level. A GDP print hitting the forecasted 0.4% quarter-on-quarter growth could keep the Pound steady, but any deviation will trigger sharp liquidations or rallies. Given that the pair is trading below its 20-period and 100-period moving averages, the technical path of least resistance remains to the downside.
For derivative traders, we suggest using short-term option straddles to capture a sharp breakout regardless of the direction. Implied volatility for EUR/GBP historically spikes by an average of 15% to 25% on days with major UK growth data surprises. If the GDP data misses the 0.4% estimate, buying near-the-money call options could yield substantial returns as the exchange rate rapidly heads toward the 0.8554 resistance level.
Trade Strategies and Broader Outlook
Alternatively, if the data meets or exceeds expectations, we favor shorting EUR/GBP futures or buying put options targeting the 0.8532 support floor. This bearish outlook is supported by recent sticky German inflation data which failed to lift the Euro, showing underlying weakness in the single currency. Tight stop-losses should be placed just above the 0.8551 threshold to protect against any unexpected Euro-supportive outcome.
Over the coming weeks, we must also monitor the broader macroeconomic divergence, especially with the Bank of England keeping rates at 3.75% despite division among policymakers. Historical data shows that when three or more MPC members vote for a hike, the Pound tends to outperform the Euro by an average of 1.2% over the subsequent month. Positioning for a sustained downward trend in EUR/GBP through autumn put options seems highly favorable in this environment.
