EUR/GBP edges lower on Tuesday after posting modest gains the previous day, when a sharp decline in Oil prices offered some relief to the energy-dependent Eurozone and supported the Euro (EUR). At the time of writing, the cross trades around 0.8336, down 0.11% on the day.
Oil prices rebound after the Wall Street Journal (WSJ) reported that Washington carried out limited strikes on Iran’s Qeshm Island. West Texas Intermediate (WTI) trades above $97, up 2.45%, after losing nearly 7% on Monday. The decline followed reports that Iran’s President said the Supreme Leader had granted the government more authority over negotiations.
The Euro remains near levels last seen in April 2025, as heightened fiscal risks in France keep the British Pound (GBP) favoured against the single currency. A light economic calendar on Tuesday leaves traders focused on Middle East headlines and Oil price movements.
On Wednesday, attention turns to the final October Services and Composite Purchasing Managers’ Indexes (PMIs) from the Eurozone and the United Kingdom, alongside preliminary Eurozone inflation figures.
These releases lead into the Bank of England’s (BoE) monetary policy announcement on Thursday. The BoE is widely expected to deliver its first rate hike since 2023 as policymakers seek to prevent the Middle East energy shock from feeding into broader price pressures.
BoE rate hike expectations also lend support to the British Pound against the Euro. A rise to 4% would widen the gap with the ECB’s 2.50% deposit rate to 150 basis points (bps) from 125 bps.
Sterling outperformance persists as EUR/GBP slide invites consolidation
Analysts at ING note that Sterling is “trading reasonably well,” underpinned by the market’s view that “high energy prices leave the Bank of England no alternative but to hike rates on Thursday.” They add that “upside economic surprises, UK fiscal policy seemingly heading in the right direction and warmer ties with the EU all seem to be helping sterling too.” Positioning is also seen as supportive, with ING highlighting that “speculators are still running reasonably large short positions in sterling, which suggests this period of sterling outperformance can continue.”
Against this backdrop, ING points out that “EUR/GBP has come a long way very quickly – a near 4% drop in a little over a month,” and judges that “some consolidation is probably due.” Even so, they argue that with “high energy prices likely to keep expectations of higher UK policy rates in place until early next year and French budgetary problems unresolved, it is too early to expect a significant low in EUR/GBP.”
