Insights 
VT 
The Euro remains steady following the French government’s survival of two no-confidence votes. The British Pound is experiencing modest support due to slight growth but faces issues stemming from fiscal worries. French political calm has restored market sentiment favouring the Euro.
Current Market Position
As of Friday, EUR/GBP stands around 0.8700, bolstered by improved sentiment after French Prime Minister Sébastien Lecornu withstood two no-confidence motions in parliament. This has helped stabilise the Euro against the British Pound.
In the UK, the economy expanded slightly, with GDP rising by 0.1% MoM in August following a 0.1% decline in July. Industrial Production increased by 0.4% MoM, indicating a minor recovery in manufacturing. However, upcoming tax hikes in the Autumn Budget might dampen domestic demand.
Eurozone inflation data reveals stable but above-target price pressures, with the Harmonized Index of Consumer Prices (HICP) rising 2.2% YoY in September and core inflation at 2.4%. The European Central Bank suggests limited room for further rate cuts.
Overall, the current situation favours the Euro, maintaining a steady EUR/GBP position around 0.8700. The Euro showed the most strength against the British Pound today, with a minor percentage change of 0.06%.
With French political risk fading for now, we see the path of least resistance for EUR/GBP as sideways to higher. The key driver is the divergence between a stable Eurozone outlook and mounting fiscal pressure on the UK. This suggests that any dips in the pair towards 0.8650 are likely to be met with buying interest.
Future Strategies
The upcoming UK Autumn Budget is a significant concern, with planned tax hikes likely to dampen consumer spending. We saw the UK’s public debt-to-GDP ratio hover around 93% throughout 2024, a historically high level that limits the government’s fiscal flexibility. This backdrop makes it difficult to be optimistic about the British Pound against a more stable Euro.
In the Eurozone, inflation remains stubbornly above the European Central Bank’s 2% target, making interest rate cuts unlikely in the near term. The ECB has held its main policy rate firm for several meetings, providing a solid yield advantage that supports the Euro. This policy stance creates a supportive floor for the EUR/GBP pair.
Given this view of limited downside and modest upside, traders could consider a bull call spread on EUR/GBP. Buying a November 2025 call option with a 0.8725 strike price while simultaneously selling a 0.8825 call would be a cost-effective way to position for a gradual move higher. This strategy profits if the pair rises above 0.8725 by expiration.
Alternatively, for those who believe the pair will remain stable and “well anchored,” selling an out-of-the-money put spread could be effective. Selling a November 2025 0.8650 put while buying a 0.8550 put for protection would generate income if EUR/GBP stays above 0.8650. This aligns with the historical price action where the mid-0.8600s have provided strong support over the past year.
