EUR/GBP Price Forecast: Bulls Challenge 0.8600 Resistance After Weeks of Consolidation

EUR/GBP traded near 0.8600 on Friday, with bulls attempting to challenge this key resistance level after weeks of consolidation. The main factor weighing on Sterling is the Bank of England's wait-and-see stance—the central bank held its benchmark rate at 3.75% at last week's meeting and has remained on hold so far this year, contrasting with the European Central Bank's earlier rate hikes, providing relative support for the Euro.

**BoE's Hold Weighs on Sterling**

The BoE's cautious approach of keeping rates unchanged is becoming the core logic pressuring Sterling in the short term. Market attention has shifted to upcoming UK inflation data and central bank policy outlook; if price pressures re-emerge, policymakers may be forced to reassess their policy path. However, absent new directional drivers, the rate differential factor will remain the key variable dominating EUR/GBP's short-term movement. According to ING analyst Pesole, based on the bank's short-term fair value model, EUR/GBP remains undervalued by approximately 1.5% against fair levels, with expectations for the pair to recover to 0.8700 by late summer.

**Bulls Challenge 0.8600 Resistance**

On the technical front, the 0.8600 level constitutes a key near-term resistance for the pair. EUR/GBP has previously made multiple attempts to return to this level without success, and on Tuesday it remained in the mid-0.8500s, failing to break through effectively. Bulls are now launching another challenge after weeks of consolidation; if the pair can hold above 0.8600, it would open room for further upside. However, Sterling positioning data shows the market still faces significant uncertainty—if short-term pressure on the US dollar shifts, Sterling could gain some respite, thereby limiting EUR/GBP's breakout momentum.

**Policy Divergence Outlook Ahead**

Looking ahead, relative shifts in ECB and BoE policy expectations, as well as changes in the Eurozone's economic growth outlook, will continue to influence Euro movement. On the ECB front, although market bets on a September rate hike have cooled somewhat, factors such as rising oil prices still leave room for surprise tightening. ING's base case is that if the ECB acts, the timing will fall in September. Potential divergence in the two central banks' policy paths could provide medium-term directional guidance for EUR/GBP.