EUR/GBP Rises as Sterling's Rate Advantage Loses Luster

The EUR/GBP exchange rate has been rising despite Sterling's 150 basis point advantage over the European Central Bank's deposit rate. The pair climbed from 0.84873 on July 16 to 0.85515 on July 28, about 0.8% off its 2026 low.

This is not a euro revival, but rather a bearish repricing of Sterling's own rate path. UK inflation has cooled, the odds of another Bank of England hike have faded, and fiscal risk has crept back into the market.

The spot differential still favors the pound, but the forward path behind it no longer does. The market is now pricing in a dovish repricing of UK rate expectations, not a stronger euro-area economy.