Euro Gains Upper Hand Over Pound on Diverging ECB and BoE Policy Expectations

The euro edged higher against the pound on Wednesday, trading near 0.85641, though price action remained confined within the narrow 0.8540-0.8580 range formed since late July, with bullish and bearish forces relatively balanced.

**Diverging central bank policy expectations underpin the euro**

The euro's recent outperformance versus the pound is primarily driven by the expectation gap between the two central banks' policy outlooks. Market reports indicate that European Central Bank officials have struck a hawkish tone, while on the UK side, weak economic data has reinforced signs of slowing growth, pressuring sterling. A survey showed some economists expect the Bank of England's benchmark rate to remain unchanged through year-end, but nearly 40% of respondents still forecast at least one adjustment, with this uncertainty capping the pound's performance.

**BoE key decision in focus**

Market attention is rapidly shifting to the Bank of England's upcoming policy meeting, with its rate decision expected to be the most critical catalyst dominating the pound's short-term trajectory. Although investors broadly do not anticipate a change in bank rates at this meeting, any hints about the future policy path could trigger a breakout from the current range. Earlier data showed both the eurozone and UK economies grew by 0.4% in the second quarter, indicating that the fundamental gap between the two sides has not widened significantly.

**Range-bound pattern awaits breakout**

EUR/GBP is currently showing a sideways consolidation pattern. Despite Wednesday's modest gain, price action is not yet sufficient to confirm a breakout. If the upcoming BoE decision delivers a clear dovish or hawkish signal, it could provide the momentum for the pair to break out of the consolidation range seen since late July. Until then, the exchange rate is likely to continue oscillating between support at 0.8540 and resistance at 0.8580.