GBP/EUR Ahead of the Autumn Budget: Hedging Options for Euro Buyers

Two things are helping it. The UK economy is growing faster than expected, and the euro has a new problem of its own in France, where government borrowing is worrying investors although fresh reports today suggest they are going to curb runaway spending and reduce the fiscal shortfall.

The big risk still ahead is the UK Budget on 28th October. A calm, sensible Budget could push the pound higher. A Budget that worries markets could knock it back quickly as we have seen so many times in the past.
For a business buying euros every month, that means the rate today is good, but the next four weeks carry real two-way risk. Fixing part of a requirement now, and leaving the rest open, can offer a sensible middle ground.

The pound is holding firm against every major currency except the Japanese yen.

It is holding above the 100-day moving average and traders watch that line as a guide to the general direction, and staying above it is a positive sign for the pound. GBP/EUR is trading near the top of the recent range.

The UK economy is doing better than expected. Official figures this week revised UK growth for April to June up to 0.5%, from 0.4%. That follows 0.6% growth in the first three months of the year. Over the first half of 2026, the UK grew faster than any other G7 economy. The growth has also been good quality. Much of it came from businesses investing and from exports, rather than just consumer spending. In recent years the UK economy has tended to slow in the second half of the year. So far, that slowdown has not arrived. An index that tracks whether UK economic data is beating or missing forecasts is well into positive territory. In plain terms, the numbers keep coming in better than economists expected.

Interest rates may rise. A stronger economy, together with higher energy prices pushing inflation up to 3.1%, means the Bank of England is now expected to raise interest rates on 5th November. Higher interest rates usually support a currency, because investors earn more by holding it.

Borrowing costs are rising around the world. On 1st October, government borrowing costs in the US, UK, France and Japan hit their highest levels in decades, with UK 30-year borrowing costs above 6% for the first time since 1998. High UK yields can attract foreign money into the pound, which helps support it. But they also make borrowing more expensive for the government, squeezing the Chancellor's room for manoeuvre before the Budget. Because this is a global move rather than a UK-only problem, the pound has not been singled out, but it does add to the pressure going into 28th October.

France has a borrowing problem. Its parliament is so divided that the government cannot agree spending cuts, so it keeps borrowing more. Figures from France's debt agency this week show how big the bill is getting:

That creates a loop. Higher borrowing costs push up the interest bill, which makes the deficit bigger, which worries investors more.

Investors are demanding more to lend to France. The extra return investors want for holding French government debt instead of German debt has doubled since February. It was under 0.9% at the start of September and is now above 1.2%. Germany is seen as the safest borrower in Europe, so this gap is a simple measure of how worried investors are about France. French 10-year borrowing costs are at their highest since 2008, and a ratings agency downgraded France this month.

Politics makes it harder. The government presented its draft 2027 budget this week, and it has to get through a parliament where no party has a majority. There is also a presidential election in April 2027, with Marine Le Pen leading the early polls. A tough budget could bring down the government, which would leave France without a budget just as its borrowing needs hit a record.

Why France's problem is a euro problem. Nobody seriously expects France to stop paying its debts. The worry is what it would take to prevent that. Because France shares the euro, if markets became disorderly the European Central Bank would be expected to step in and support French debt, in effect creating money to keep borrowing costs down. That would weaken the euro. More than half of French government debt is held by foreign investors, who are usually the quickest to sell.

It also affects interest rates. The European Central Bank raised rates in September, but its President has since signalled a "measured response" to higher energy prices. With France looking fragile, the ECB has good reason to go carefully on further rate rises. Slower rate rises in Europe, while the Bank of England is expected to raise rates in November, would remove some of the support that has helped the euro this year. That matters for GBP/EUR.

What it means for EURO buyers. So far the euro has held up reasonably well, and its recent fall against the US Dollar has mostly been about a strong Dollar. But a French budget crisis would bring selling aimed specifically at the euro, which would tend to help GBP/EUR. If a credible budget gets through, that pressure would ease.

The Budget on Wednesday 28th October is still the biggest risk for the pound this autumn. It is the government's plan for tax and spending over the coming years, and it will show investors whether the UK's finances are under control. 

This one carries extra uncertainty because it is the first from the new Chancellor, John Healey, and the first since Andy Burnham became Prime Minister. With a new team in charge, markets have no track record to go on, so they are less sure what to expect, and surprises tend to cause bigger moves in the pound. 

Higher borrowing costs have roughly halved the government's safety margin against its own spending rules, from £23.6 billion to around £12 billion. Options markets also show that many traders are positioned for the pound to fall in the week after the Budget. 

At the Labour conference this week, the Prime Minister announced big plans: a free National Care Service, public control of water, council housing at scale and closer ties with the EU. Normally, promises like these would worry investors about more borrowing.

What calmed things down is the timeline. He made clear these plans would take around ten years, and the main source of funding (changes to the state pension triple lock) only starts from 2030-31. So none of it changes borrowing in the next year or two. Some economists say the sums do not add up, but for now the bond market is looking past it.

The Prime Minister has also shown he watches the bond market closely. When he first talked about "flexibility" in the fiscal rules after taking office, gilts and the pound both fell within days. Since then, his announcements have been small and affordable.

The dull-Budget scenario. Many large investors are braced for a difficult Budget. If it turns out to be cautious and uneventful, that worry would fade, and the pound could rise afterwards. Some traders may already be buying pounds now to get ahead of that, which may be part of this week's move.

The risk runs the other way as well. If the Budget relies on more borrowing, or the numbers are not believed, the pound could fall sharply on the day.

Forecasters are split, which is a good reminder that nobody knows for certain.

The more positive view is that the pound ends the year higher against the euro. The argument is that the UK economy keeps beating expectations, the Bank of England is likely to raise rates, and the government is too cautious to deliver a Budget that scares the markets. With so many investors expecting trouble, a calm Budget could trigger a relief rally.

The more cautious view is that the pound is vulnerable this autumn. The argument is that the economy will slow as higher energy prices bite, the Bank of England may not raise rates as much as markets expect, and the Budget will be difficult. Some forecasters say they would buy the euro on any dips against the pound.

Both views are reasonable. That is why many businesses choose to protect part of their costs rather than betting on one outcome.

What could go wrong for the pound

If you buy around €1 million a month, every one cent move in GBP/EUR changes your cost by roughly £7,000 to £7,500 a month.

Buying euros today and holding them does protect you, and you would be buying near the top of the recent range. It is simple, and it removes the Budget risk for the amount you buy.

But it has two drawbacks. First, it ties up a lot of cash now for payments that may be weeks or months away, which can squeeze cash flow in your busy season. Second, you lose interest: pounds in the bank currently earn more than euros, so swapping early means giving up that difference.

A forward contract does the same job without paying for the euros upfront. You fix today's rate for a future date and only pay when you actually need the euros. For most importers, that is a better way to achieve what stocking up is trying to do.

One thing to know: because UK interest rates are higher than eurozone rates, the forward rate is a little lower than today's rate. 

There is no single right answer. The best approach depends on how sure you are of your volumes and how much of a rate move your margins can take.

1. Fix part of your requirement with forwards. You lock in a rate for a portion of each month's euros, for example half of the next three to six months, and buy the rest at the normal rate as invoices fall due. You know the cost of the fixed half, and you still benefit on the other half if the pound rises. Forwards can be set up so you can draw the euros at any time within a date window, to match when your invoices actually need paying. The only drawback is that the fixed portion does not benefit if the rate improves.

2. Use rate orders. You set a level and we buy automatically if the market reaches it. A protection order or stop loss would buy if the pound falls to that level. A target order would buy if the pound rises. There is no cost to set these up. The catch is that an order is not a guaranteed rate. If the market jumps straight past your level, for example on Budget day, the order fills at the next available rate, which could be lower.

3. A protective forward that you extend. You book a forward for euros you will need further ahead, and keep buying your near-term euros at the normal rate while the market is above that level. If the rate falls below it, you use the forward. If you do not need it yet, you push the forward back to a later date. This gives you a safety net without an upfront fee, but there are three things to understand:

The euros under the forward will always end up paying one of your future invoices, so nothing is wasted. It is simply a forward with a flexible date rather than a free safety net.

4. Options. An option gives you a guaranteed worst-case rate while keeping all the benefit if the pound rises, in return for an upfront fee, a bit like insurance. A version with no upfront fee sets a worst-case rate below today's level and a best-case rate above it, so you know the range you will pay within. These are worth considering if you want certainty on the downside without giving up the upside.

Suggested approach

With the pound near the top of its recent range and the Budget four weeks away, some businesses may wish to consider taking some of the risk off the table now, rather than trying to guess the outcome.

One balanced way to do this would be to fix around half of your euro requirement for the next three months with window forwards, so the euros are there as invoices fall due. 

If you want more flexibility, the protective forward approach can work well, as long as the extension costs are understood from the start.

Once you have a clearer view of your volumes for the next few months, speak to the team here at Lamera and we can put the right structure in place.

This article provides general market information and is not a recommendation based on your individual circumstances. Please speak to us before making any decisions.