EUR/GBP has traded in a narrow range this month, with a mild tilt lower. Expectations are that this downward pressure may fade as spring continues, allowing the pair to edge up.
Market pricing for G10 central banks shifted after March, with less tightening now implied for both the European Central Bank and the Bank of England. Rate rises are still priced in over a 1-year horizon, but the expected scale is smaller than it was in March.
EUR/GBP is projected to move higher towards 0.88 by the autumn. UK growth concerns, political risk and reduced expectations of further Bank of England tightening are presented as factors that could weigh on sterling.
UK local elections in England and parliamentary elections in Wales and Scotland take place in May, alongside discussion of political pressure linked to weaker UK economic prospects. This political backdrop is described as a reason for caution on holding long GBP positions into next month.
Optimism about an end to the war in the Middle East and a more limited inflation impact is also noted. In this context, weak UK GDP data could further reduce expectations of Bank of England rate rises and pressure the pound.
We are seeing the recent downward pressure on EUR/GBP losing its momentum as we head further into the spring. Looking back at a similar situation in 2025, we saw the pair bottom out before grinding higher, a pattern that could repeat itself. This suggests that the market is beginning to reconsider the relative outlooks for the UK and Eurozone economies.
The core of this view is the growing divergence in central bank policy expectations. Current market pricing, as of mid-April 2026, implies the Bank of England may only deliver one more rate hike this year, while persistent core inflation in the Eurozone, which printed at 2.7% last month, keeps the pressure on the European Central Bank to remain more aggressive. This difference in expected interest rate paths should provide a steady tailwind for the euro against the pound.
Recent UK economic data reinforces this cautious stance on the pound. The latest figures showed the UK economy grew by a mere 0.1% in the first quarter of 2026, missing forecasts and highlighting underlying weakness. This sluggish performance gives the BoE very little room to tighten policy further, especially compared to its European counterpart.
We can draw parallels to the political uncertainty we observed heading into the May 2025 elections, which weighed heavily on sterling. That period of political risk kept investors from holding long pound positions, and we see a similar sentiment developing now. Traders should therefore consider buying EUR/GBP on any short-term dips.
For derivatives traders, this outlook suggests that buying EUR/GBP call options with expiries in the late summer or early autumn is a sensible strategy. This provides upside exposure to a potential move towards the 0.88 level while defining risk. The current low implied volatility in the pair makes establishing such long-option positions relatively inexpensive.
