British Pound gains against Euro as UK Autumn Budget approaches

• EUR/GBP slips as markets prepare for major UK and Eurozone event risks.
• Ahead of Thursday’s ECB decision, markets focus on the UK’s tax and spending proposals.
• The Euro remains under pressure against the British Pound as French fiscal worries persist.

Mixed market sentiment accompanies a modest decline in EUR/GBP on Tuesday, as fiscal worries in France put pressure on the Euro (EUR) and favour the British Pound (GBP). Both currencies nevertheless lag their other major counterparts ahead of this week’s key events. Trading around 0.8364 at the time of writing, EUR/GBP is close to levels previously seen in May 2025.

For the British Pound, Wednesday’s UK Autumn Budget is the main event to watch. With Chancellor John Healey under pressure to reduce living costs without allowing government borrowing to rise unchecked, traders will examine whether the proposed taxes and expenditure provide sufficient headroom to comply with the government’s fiscal rules.

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,” alongside that backdrop, would “remain supportive for GBP.” The bank also sees this resilience continuing to favour GBP over EUR against “comparatively softer euro-area momentum and lingering French sovereign concerns,” with a “relatively more hawkish BoE outlook.” providing further support.

Different policy moves are anticipated from the Bank of England (BoE) and the European Central Bank (ECB) at their forthcoming meetings. A hold in the ECB’s deposit rate at 2.50% is widely expected when it delivers Thursday’s monetary policy decision. To address inflationary pressure arising from higher energy costs, the bank has already increased rates by a cumulative 50 basis points (bps) this year.

For Brown Brothers Harriman analysts, "contained Eurozone underlying inflation and tighter financial conditions" leave room for policymakers to pause at this stage. Their caution, however, is 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)." BBH consequently anticipates that "France’s bond market turmoil is likely to dominate ECB President Christine Lagarde’s press conference."

A 25 bps hike is fully priced in by traders ahead of the BoE’s interest rate announcement on 5 November. Rates have remained on hold throughout this year so far, with policymakers observing little evidence that rising energy costs were feeding through to wider prices and wages. Expectations of a hike have nevertheless firmed following the latest increase in inflation and steady figures for the labour market and growth.

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