MUFG Research suggests going long on EUR/GBP in its Trade of the Week portfolio, targeting 0.8850 with a stop at 0.8350. The exchange rate is currently at 0.8650.
MUFG expresses that GBP downside risks are growing, supported by recent price stability. EUR/GBP has remained above the 0.8600 mark longer than any period since late 2023 or early 2024.
Growing Concerns for Gbp
The GBP’s recent drop was due to concerns about UK public finances, with potential tax increases in autumn possibly affecting business and household spending. This situation could lead to weak growth in the third quarter.
What MUFG is laying out here is fairly direct: they expect the euro to gain ground against the pound in the short term. The position—going long EUR/GBP—aims to catch further upward movement in the pair, specifically up to 0.8850. A stop has been placed at 0.8350, offering enough room to withstand some natural price fluctuations without cutting the trade too early. As of now, the price sits at about 0.8650, placing the entry point near the market level. The suggestion is therefore ready for execution without needing to wait for a pullback.
MUFG’s rationale stems from building stress around the UK’s fiscal outlook. Tax pledges are under pressure, there’s chatter about higher levies later in the year, and investors haven’t shrugged this off. Rather than improving, the sentiment around future growth appears strained. The concern is that higher taxes will prompt both households and businesses to spend less, which, in turn, might mute any recovery through the third quarter. That’s not speculation—it’s based on existing official hints and economic indicators already trending lower.
Martin at MUFG and his team are also leaning on price action as further justification. EUR/GBP holding above 0.8600 for a relatively extended stretch is more telling than it may seem at first glance. Price stability here suggests that the market is already reassessing the balance between interest rate expectations and fiscal credibility. Since late last year, we hadn’t really seen this kind of support in the pair; that’s not a coincidence.
Short Term Positioning Strategy
For strategies involving short-term positioning, this isn’t a time to force reversals. The structure above 0.8600 is intact. The suggested risk management—a wide stop below 0.8350—implies they’re allowing the trade breathing space in case of sudden spikes in volatility, especially with upcoming UK data releases likely to stir things. The Bank of England may remain cautious on rates if political uncertainty and shaky spending figures persist. Bailey’s next statements will almost certainly be pored over for hints.
As of now, the data does not favour faded rallies in the pound. Instead, conviction comes from the weaker side—selling the pound rather than building support around it. Bearish tones are still embedded in recent UK reporting and aren’t offset by any fresh optimism. We’ve noted that inflation cooling alone hasn’t sparked confidence among investors. Real income remains flat, and consumer demand has been more fragile than seasonal averages.
In this setting, short-dated futures imply more one-way risk in sterling. Implied volatility has not dropped, which keeps protective positioning attractive. Those active in options may find better pricing in calls if already holding long EUR/GBP. Even forwards are widening slightly, suggesting pricing in some premium for euro strength ahead.
Given all of this, it becomes less about hoping for a bounce and more about accepting where the weight of information leads. Maintaining exposure in this direction for now appears well-supported.
