The Euro/GBP pair continued its upward trend in Asian trading, trading around the 0.8700 level, marking its second consecutive day of gains.

The upward trend was mainly supported by the minutes of the European Central Bank's September policy meeting, which showed that most policymakers believed that the current monetary policy stance was consistent with the medium-term inflation target of 2%, and that the current interest rate level was sufficient to cope with potential shocks.

“Decision-makers generally believe that keeping interest rates unchanged is a prudent option given the current two-way inflation risks.” — Summary of ECB internal discussion minutes

However, political uncertainty in France could still weigh on the euro, as investors are increasingly concerned about France's fiscal deficit following the resignation of Prime Minister Sébastien Lecornu.

President Emmanuel Macron is expected to appoint a new prime minister on Friday to stabilize the political landscape, but uncertainty surrounding the process has dampened some of the euro's safe-haven appeal. Meanwhile, the British pound has been supported by the Bank of England's cautious stance.

"Monetary policy needs to remain tight for longer to foster a supportive environment for growth," Bank of England policymaker Catherine Mann said on Thursday, adding that inflation remained sticky and the outlook for economic growth remained moderate.

In addition, James Murray, the chief secretary to the Treasury, said on Wednesday that the government will limit the use of emergency funds for public sector pay raises to prevent wage spirals. "This cautious but firm approach to fiscal management will help build a more stable economic environment." - James Murray

Looking at the daily chart, EUR/GBP has closed higher for two consecutive days, improving its short-term technical structure. The price has stabilized above its 5-day and 10-day moving averages, indicating increased buying momentum. The RSI has broken above its 50-day moving average, and the MACD has continued to expand, indicating bullish momentum.

If the exchange rate can hold the support level of 0.8680, it is expected to test the resistance range of 0.8725-0.8750 in the short term. If it falls below 0.8670, it may pull back to 0.8640 to seek support. The overall daily chart pattern is bullish, but we should be wary of the increased volatility caused by the political risks in France.

Editor's opinion:

The current rise in the EUR/GBP is more due to market confidence in the stability of ECB policies than any real improvement in Eurozone fundamentals. If the French political crisis continues, the euro may face capital outflow pressure in the short term.

In the future, we need to pay attention to whether the Bank of England’s policy tone will continue to be hawkish to determine whether the exchange rate can break through the key resistance area of 0.8750.