ING said EUR/GBP has limited scope to fall further after dropping to 0.870, a move linked to sterling’s sensitivity to a sharp equity rally. It said euro area rate expectations may remain “sticky” while UK rates could be repriced more dovishly.
ING said this could happen if energy prices keep falling and markets adjust Bank of England expectations. It noted the BoE was ready to cut before the war began and said second‑round effects in the UK are lower than in 2022.
BoE ECB Policy Divergence
ING said upcoming comments from BoE Governor Andrew Bailey, Catherine Mann and Megan Greene could affect market pricing. It said markets currently price 30bp and could trim pricing below one hike this year.
ING said this could support EUR/GBP moving back towards 0.880 this quarter. The article said it was created with the help of an Artificial Intelligence tool and reviewed by an editor.
Looking back at the analysis from last year, the expectation was for the Euro to gain against the Pound as central bank policies diverged. This view was based on the idea that the Bank of England (BoE) had more room to soften its stance than the European Central Bank (ECB). We saw this play out as EUR/GBP did indeed climb from the 0.870 level discussed at the time.
This forecast was supported by falling energy prices and inflation data through late 2025. UK inflation cooled more quickly than expected, ending the year at 4.0%, while the Eurozone figure remained stickier around 4.5%. This gave the BoE the confidence to signal a more dovish path, confirming the predicted repricing.
EUR GBP Strategy Outlook
That policy divergence is still the main driver for us today, with futures markets now pricing in a 75% chance of a BoE rate cut by August 2026 while the ECB holds firm. Derivative traders could position for further EUR/GBP strength by buying call options with a 0.8850 strike expiring in the third quarter. This strategy offers a defined risk while capturing potential upside as the BoE moves closer to cutting rates.
We should expect sterling to remain sensitive to UK growth data in the coming weeks, as any sign of economic weakness will accelerate BoE rate cut bets. This dynamic is reminiscent of the divergence we saw in 2014, which led to a multi-month period of sterling underperformance. Therefore, strategies that profit from a gradual rise in the EUR/GBP exchange rate seem most appropriate right now.
