British Pound gains against Euro as UK Autumn Budget approaches

• EUR/GBP slips ahead of key UK and Eurozone risk events.
• Thursday’s ECB decision follows a focus on UK tax and spending proposals.
• The Euro remains under pressure against the British Pound as French fiscal worries persist.

Trading at around 0.8364 at the time of writing, EUR/GBP is close to levels last seen in May 2025. The pair has edged down on Tuesday in a mixed market mood, as concerns over France’s public finances weigh on the Euro (EUR) and help the British Pound (GBP) outperform. Against their other major peers, however, both currencies remain subdued ahead of this week’s key events.

Wednesday’s UK Autumn Budget is the main focus for the British Pound, with Chancellor John Healey under pressure to bring down living costs without losing control of government borrowing. Whether the proposed tax and spending measures provide sufficient headroom to comply with the government’s fiscal rules will be central to traders’ assessments.

In the view of OCBC analysts, “a Budget that preserves a meaningful fiscal buffer while maintaining a credible tightening path should keep the UK fiscal risk premium contained,” while “continued foreign demand for gilts” would help this backdrop “remain supportive for GBP.” Against “comparatively softer euro-area momentum and lingering French sovereign concerns,” OCBC says sterling’s resilience continues to favour GBP over EUR, with a “relatively more hawkish BoE outlook” providing further support.

Divergent policy decisions are expected from the Bank of England (BoE) and the European Central Bank (ECB) at their forthcoming meetings. On Thursday, the ECB is widely expected to leave its deposit rate at 2.50% when it delivers its monetary policy decision. To address inflationary pressure from higher energy costs, it has already increased rates by a cumulative 50 basis points (bps) this year.

A pause is possible for now, according to analysts at Brown Brothers Harriman, given "contained Eurozone underlying inflation and tighter financial conditions". They nevertheless warn that "resilient economic activity and inflation projected to remain above target for an extended period keep a December rate hike to 2.75% firmly in play (75% priced in)." In this setting, BBH anticipates that "France’s bond market turmoil is likely to dominate ECB President Christine Lagarde’s press conference."

A 25 bps increase is fully priced in by traders ahead of the BoE’s interest rate announcement on 5 November. Rates have been held steady throughout this year, with policymakers finding little evidence that higher energy costs were feeding through to wider prices and wages. Expectations of a rise have nonetheless gathered strength following the latest inflation increase and steady labour market and growth data.

Earlier this month, BoE Governor Andrew Bailey warned, “Inflation risks rise the longer high energy prices persist.” He also said, “Monetary policy needs an unwavering commitment to returning inflation to target.”