The euro is ending August with solid momentum, having climbed to $1.1697 against the dollar, its strongest level in three months, driven by ECB rate hike bets that continue to gain traction. French and Spanish inflation both surprised to the upside, with Spain's harmonised reading reaching 4.5%, its highest since 2023. This reinforced market expectations that the ECB deposit rate could rise to 2.80% by next March, from the current 2.25%. A September hike is currently priced at roughly 60% probability.

For EUR/GBP specifically, what matters is not the euro's strength against the dollar but the relative interest-rate path between the euro area and the UK. Crosses like EUR/GBP are particularly sensitive to shifts in expected policy differentials, because they strip out the dollar's influence and price the two central banks directly against each other—a divergence that this month's data has widened in the ECB's favour.

Sterling, by contrast, faces a difficult domestic backdrop. The Bank of England's July decision—a 6–3 hold, with three members voting for a hike—was initially read as hawkish, but Governor Bailey used his press conference to firmly close the door on near-term hike bets. UK inflation eased to 2.9%, yet the labour market cooled more sharply than expected, with private-sector wage growth at its softest pace since 2020. The BoE is left torn between growth resilience and a weakening jobs picture.

The result is an ECB showing growing conviction toward further tightening, set against a Bank of England sending increasingly mixed signals, while political uncertainty over Downing Street's succession continues to simmer in the background. With the ECB's September meeting the next scheduled policy checkpoint, the mix of a firming rate-hike probability and a dovish-leaning BoE frames the fundamental backdrop traders will be watching as the compression resolves.

Technical Analysis of EUR/GBP

As the EUR/GBP chart shows, the pair has been compressing into a tightening symmetrical triangle since mid-August. A descending trendline from the 0.8587 highs converges with an ascending trendline drawn from the 0.8480 lows, with both meeting near the current price around 0.8569—exactly where the 100-period EMA also sits. Such narrowing ranges typically reflect falling volatility as buyers and sellers reach equilibrium; the coiling itself does not indicate direction, which is why a confirmed close beyond either boundary—rather than a brief intraday poke—is the signal most traders wait for before treating the move as decisive.

Bullish Scenario

Should buyers break above the descending trendline, the path would open toward a retest of the 0.8587 highs, the 0 Fibonacci level marking the origin of the recent pullback. A confirmed breakout above that level would signal bullish continuation for the euro.

Bearish Scenario

Conversely, a break below the ascending trendline and the 100-period EMA would expose the 0.382 retracement near 0.8536, with a deeper slide risking a retest of the 0.5 level around 0.8521.

With price coiled at the apex of this triangle and sitting exactly on the 100-period EMA, EUR/GBP looks primed for a decisive break. The question now is whether the ECB's hawkish momentum can push the euro through resistance, or whether sterling's political noise keeps the pair capped.