Hedging sterling: a currency that looks stable and isn't
Over five years, EUR/GBP ended almost exactly where it started. In between, it moved by nearly 10% in a few months. What moves sterling, the lesson of the 2016 referendum, what a forward costs today and how to hedge business in the UK.
For a French company, the UK is a nearby market, and sterling a currency it thinks it knows. The five-year comparison seems to agree: the ECB reference rate was 0.8437 pounds per euro on 15 October 2021, and 0.8439 on 16 October 2026. A misleading stability.
Stability on the surface
The period's low and high both fall in 2022, seven months apart. A company collecting sterling that year saw the value of its receivables move by nearly 10% — without the five-year comparison keeping any trace of it.
The lesson of 24 June 2016
ECB rates record the sharpest shock sterling has suffered recently. On 23 June 2016, the day before the result of the EU referendum was announced, the euro was worth 0.7660 pounds. On 24 June, 0.8075: 5.4% more in one session. On 27 June, 0.8340: nearly 9% in two sessions.
A political event dated in advance can produce in one day the equivalent of several years of margin. That is precisely the kind of risk a hedge taken before the date neutralises — and that no forecast can anticipate in direction.
What moves EUR/GBP
- The monetary policy gap between the Bank of England, which targets 2% inflation, and the ECB.
- Political deadlines and trade relations between the UK and the European Union.
- Sterling's place in the market: its share of global FX trading fell to 10.2% in April 2025, according to the BIS, but it remains among the most traded currencies.
What a forward costs today
With sterling rates above euro rates, the EUR/GBP forward trades above spot — in proportions very close to the dollar.
| As of 16 October 2026 | Value |
|---|---|
| Gap between one-year forward and spot, EUR/GBP | +1.58% (0.8433 spot, 0.8566 one year) |
| Exporter: EUR 1,000,000 receivable in GBP, hedged one year ahead | about EUR 984,500, i.e. 1.6% less than at spot |
| Who the forward favours | The importer paying in sterling; the exporter bears the cost |
Hedging business in the UK
- 1Invoice in sterling, and hedge
Invoicing a British customer in its currency simplifies the sale; the risk moves to the French company, which hedges it by selling sterling forward.
- 2Hedge in layers
Part of expected sales hedged well in advance, part closer to maturity: the average rate smooths out with no bet on a single date.
- 3Anticipate known deadlines
Elections, trade negotiations, Bank of England decisions: hedge before, not after.
Sources
- European Central Bank, euro reference exchange rates (EXR series), from 15 October 2021 to 16 October 2026; extremes calculated by ELEGG.
- European Central Bank, EUR/GBP reference rates from 22 to 28 June 2016 (EXR series).
- Bank for International Settlements, 2025 Triennial Survey: "Global FX trading hits $9.6 trillion per day in April 2025", press release, 30 September 2025.
- Forward points and spot rates captured by ELEGG Finance on 16 October 2026 at 22:17 UTC (source: NetDania), mid rates between bid and offer; ELEGG calculation.
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Frequently asked questions
The questions finance departments ask most often on this topic
Is sterling stable against the euro?
On the surface: the ECB reference rate is almost identical in October 2021 and October 2026. But between March and September 2022, EUR/GBP moved by 9.6%, and the day after the 2016 referendum it jumped 5.4% in one session.
How much does a sterling forward hedge cost?
On 16 October 2026, the one-year EUR/GBP forward traded about 1.58% above spot, because sterling rates are higher than euro rates. An exporter selling sterling forward receives about 1.6% fewer euros than at spot.
How do I hedge sales in the UK?
By selling the expected sterling forward, preferably in successive layers to smooth the rate, and by hedging before known political or monetary deadlines rather than after.
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