EURGBP: 0.8400 Providing Solid Base, Yield Differential Moves Supporting

The post-election bid for GBP has been tempered in recent weeks, with stretched long positioning and questions surrounding “pro-growth” Labour policy acting as moderate headwinds for sterling.

• Downside for equities in early September (negative seasonals in play) may also be weighing on GBP given its higher beta to stocks.
• Yield differentials have also become a little less favourable for GBP longs since the start of the month, as dovish moves in medium-term BoE pricing have outstripped that seen for the ECB (see the SONIA/Euribor Dec ’25 spread in the chart below).
• Accordingly, EUR/GBP has been drifting higher, with moves sub 0.8400 failing to ignite further downside momentum this year.
• Trendline support off the 2022 lows also now intersects around the 0.8400 mark. Resistance levels of note are 0.8470, the 50-day EMA and 0.8494, the Aug 26 high.
• While longer term relative growth expectations, the BoE’s lack of commitment to follow up rate cuts and stickier UK inflation all point to further downside for EUR/GBP, the factors flagged above remind us that any such moves are unlikely to come in a straight line.
• A break of 0.8400 and key support at 0.8383, the Jul 17 low, would be required to resume the medium-term technical downtrend.

Fig. 1: SONIA/Euribor Dec '25 Implied Rate Spread