Insights 
VT 
The EUR/GBP is trading positively, holding above 0.8700 following UK employment data. The British Pound is weakening as the UK Unemployment Rate increased to 4.8%, with a rise in the Claimant Count Change indicating reduced labour demand. Average Earnings Excluding Bonus dropped to 4.7% year-on-year, the slowest since May 2022.
In the Eurozone, the Euro experiences limited benefits from a slight improvement in German economic sentiment, due to political uncertainty in France. The French political scene remains unstable as President Macron reappointed Sébastien Lecornu as Prime Minister amidst opposition challenges. A no-confidence vote is scheduled, impacting the Euro’s potential rebound.
Euro Versus Major Currencies
The Euro’s performance against major currencies varies, with the Euro strengthening the most against the Australian Dollar. The currency analysis table highlights percentage changes for the Euro and other major currencies. These include US Dollar, British Pound, Japanese Yen, Canadian Dollar, Australian Dollar, New Zealand Dollar, and Swiss Franc. Currency comparison utilises data columns, allowing evaluation against each listed currency.
The fresh UK labor data points to clear weakness, with unemployment rising to 4.8% and wage growth slowing to its weakest pace since May 2022. This reinforces our view that the Bank of England will likely cut interest rates before the end of the year, possibly in December. This policy divergence from other central banks should keep the Pound under pressure for the coming weeks.
We see the Euro’s upside potential being capped by the ongoing political drama in France. The upcoming no-confidence vote on Thursday is a significant source of uncertainty, reminiscent of the market jitters we saw during the French legislative elections last year. This instability makes it difficult for the Euro to fully capitalize on the Pound’s weakness.
Strategy Implications
The combination of a dovish Bank of England and French political risk is pushing up implied volatility in EUR/GBP options. We are seeing one-month implied volatility climb back towards the highs of early 2025, which were around 8.5%. This means options are becoming more expensive, so strategies that use spreads to reduce the initial cost should be considered.
Given the clear bearish signal for the Pound, we are favoring strategies that capitalize on this weakness. Buying EUR/GBP call spreads with a target above 0.8800 could be effective, as it caps the cost in this high-volatility environment. Alternatively, selling GBP puts against the US Dollar could also be a viable trade, given the Federal Reserve’s comparatively steady stance on rates throughout 2025.
