Insights 
VT 
The EUR/GBP pair has been gaining for two consecutive days amid dovish signals from the Bank of England (BoE). BoE’s policymaker Swati Dhingra has expressed concerns over high interest rates impacting investment and productivity in the UK. The Euro rose against the British Pound amidst subdued trading following her remarks.
As of now, EUR/GBP trades near the 0.8700 mark, recovering from an earlier dip. Anticipation builds for upcoming data releases, including the UK GfK Consumer Confidence index and Eurozone’s PMIs, to gauge economic momentum heading into late 2025.
Uk Inflation Data
Recent UK inflation data showed headline inflation at 3.8%, below expectations. This, combined with Dhingra’s comments, increases the likelihood of a BoE rate cut by year-end, with markets pricing a 75% chance for a December rate reduction.
Additionally, the UK faces fiscal challenges, with an estimated £30 billion fiscal gap. Chancellor Rachel Reeves is expected to address this in the upcoming November budget, possibly considering tax hikes or spending cuts, which may affect growth prospects and impact the Pound negatively.
On the currency front, the British Pound saw varied performance, being strongest against the Japanese Yen. It experienced declines against several other major currencies, suggesting cautious trading sentiment in the current market climate.
The British Pound is under pressure, and we see this trend continuing in the weeks ahead. Recent UK inflation data for September 2025 came in softer than expected at 3.8%, bolstering the case for the Bank of England to consider cutting interest rates. This sentiment was echoed by policymaker Swati Dhingra, leading markets to price in a 75% chance of a rate cut by December.
Monetary Policy Divergence
This monetary policy divergence is a key factor, as the European Central Bank is perceived to be on a slower easing path due to slightly stickier core inflation, which last printed at 2.6% in the Euro area. The latest UK GDP figures also confirm a significant slowdown, with growth for the third quarter of 2025 registering a mere 0.1%. Traders should position for further EUR/GBP strength as the economic data increasingly favors the Euro.
In the derivatives market, this bearish view on the Pound is becoming more pronounced. Implied volatility for GBP currency pairs is ticking higher, especially for options expiring after the late November budget announcement. We are also seeing a growing premium for options that protect against a fall in the Pound versus those that profit from a rise, indicating a clear defensive positioning among traders.
We must remember the sharp market reaction to the UK’s fiscal missteps back in September 2022, which serves as a recent historical warning. With a potential £30 billion fiscal gap, any hint of significant tax hikes or spending cuts in Chancellor Reeves’ November 29 budget could trigger a similar loss of confidence. This history makes the market particularly sensitive to the upcoming fiscal statement.
Given this outlook, strategies that benefit from a rising EUR/GBP exchange rate are advisable. Buying EUR/GBP call options with January 2026 expiries offers a way to profit from continued Pound weakness through the year-end, while capping potential losses. We are watching the 0.8700 level as a key support, with a break higher targeting the 0.8850 area in the coming weeks.
However, we need to monitor the upcoming preliminary PMI and retail sales data for both the UK and Eurozone. Any unexpectedly strong UK economic data could provide temporary relief for the Pound and challenge the current bearish narrative. These figures will be the next major catalyst before we turn our full attention to the November budget.
