EUR/GBP decreased, ending a three-day upswing and trading around 0.8725, down 0.15% on Monday. The pair stayed beneath the 0.8750 resistance, a one-month high, after climbing on Friday.

The British pound weakened over the potential for more easing by the Bank of England and concerns regarding the UK’s fiscal outlook before the November Budget. Markets anticipate a higher likelihood of a 25-basis-point rate cut in November due to stable inflation and a cooling labour market in September.

ECB Policy Signals

Conversely, the European Central Bank indicated that the easing cycle had likely concluded. By the end of 2026, rate futures forecast a slim chance of any further cuts, supporting the euro against the pound.

French political instability curbed enthusiasm for the euro. The Socialist Party leader threatened to dismantle the government if budget demands were unmet, and Moody’s adjusted France’s outlook to “negative” over political deadlock and high fiscal deficit concerns.

German’s IFO Business Climate Index rose to 88.4 in October, slightly exceeding predictions of 87.8, offering limited support to the euro. Nevertheless, investors remain cautious, awaiting Thursday’s ECB policy decision for further direction on the euro.

Today’s currency movements highlighted the euro’s strength against the Swiss Franc, according to a percentage change table.

British Pound Challenges

We see a clear divergence forming between the Bank of England and the European Central Bank, which should be the primary focus for the coming weeks. The market is increasingly certain the BoE will cut rates in November to support a cooling economy. Overnight Index Swaps now show an 85% probability of a 25-basis-point cut at the November 6th meeting, a sharp increase from just two weeks ago.

The pressure on the British Pound is compounded by fiscal worries ahead of the Autumn Budget. The recent September 2025 CPI data, which showed inflation holding steady at 2.3%, gives the BoE the green light to prioritize growth over inflation. This reinforces our expectation of a weaker Pound against the Euro.

On the other side, the European Central Bank has effectively signaled that its rate-cutting cycle is finished for the foreseeable future. Key policymakers have been adamant that they will hold rates steady, with rate futures now implying almost no chance of another cut before 2027. This fundamental difference in policy should provide a strong tailwind for the EUR/GBP pair.

However, we must watch the political situation in France, which is capping the Euro’s potential. The spread between French and German 10-year government bond yields has widened to 65 basis points, its highest since the political turmoil of 2024, reflecting investor nervousness. This political risk is a significant headwind preventing a more aggressive rally in the Euro.

For derivative traders, this suggests positioning for a gradual rise in EUR/GBP, perhaps using call options to capitalize on upward moves while limiting downside risk from French political headlines. The 0.8750 level remains a key resistance, and a break above it could be targeted with December expiry contracts. This setup is reminiscent of the 2014-2015 period, where a similar policy divergence led to a sustained multi-month rally in the pair.

Before making any major moves, all eyes will be on the ECB’s policy decision this Thursday. While no change is expected, the tone of the press conference will be critical in confirming the central bank’s firm stance. This event will likely serve as the next major catalyst for the EUR/GBP exchange rate.

Create your live VT Markets account and start trading now.