Rabobank predicts a potential fall in sterling strength, anticipating the euro to pound exchange rate will be 0.87 in the near term. They expect it to reach 0.88 within six months.
The Bank of England is expected to implement another rate cut in November. This could diminish the recent upward momentum of the pound.
UK Inflation And Wage Growth
Rabobank notes that UK inflation and wage growth remain high. This could lead to concerns over stagflation, potentially reducing interest in the pound.
We are seeing signs that the pound’s recent strength could be running out of steam. Even with UK economic growth meeting forecasts, persistent high inflation and wage growth are stirring up fears of stagflation. This combination is likely to make investors cautious about holding sterling in the coming weeks.
Recent data supports this view, with the latest figures for July 2025 showing consumer price inflation at 3.4%, still stubbornly above the Bank of England’s 2% target. Meanwhile, Q2 2025 GDP growth was a sluggish 0.1%, highlighting a stagnant economy. This backdrop makes it difficult for the pound to sustain any rally.
Our central expectation is that the Bank of England will be prompted to cut interest rates again this November to support the weak economy. A rate cut would likely remove a key pillar of support for the pound and accelerate its decline. This anticipation is already beginning to weigh on currency markets.
Derivative Trading Strategies
For derivative traders, this outlook suggests positioning for a weaker pound against the euro. Strategies like buying EUR/GBP call options or taking long positions in EUR/GBP futures could be considered to capitalize on the expected move. The near-term target for EUR/GBP is seen around the 0.87 level over the next one to three months.
Looking back, we saw a similar dynamic in the UK during the 2022-2023 period, when stubborn inflation combined with a slowing economy created significant headwinds for sterling. That historical precedent shows how quickly sentiment can turn against the pound when stagflationary risks become the market’s main focus. It reinforces the potential for a sustained move higher in EUR/GBP.
Further out, the path towards 0.88 in the next six months is likely, but traders should watch upcoming inflation and employment reports closely. Any data that strengthens the case for a November rate cut will likely serve as a catalyst for the next leg up in the EUR/GBP exchange rate. These data releases will present key opportunities to adjust positions.
