There might only be 30 kilometers of sea water that separates the U.K. from continental Europe but the gulf between the policies of its two central banks has grown exponentially, leading currency analysts to believe an interesting trading opportunity could develop over the coming months.
The stubbornness of the euro has seen it trade in a tight range against sterling for the last six months, fluctuating between 0.84 and 0.82 against the U.K. pound. But now the European Central Bank (ECB) has revealed a belt and braces approach to tackling deflation fears, many analysts believe that there is only one way that trade is going.
"We think (EURGBP) could be the most interesting trades going forward," Kathleen Brooks, a research director at FOREX.com told CNBC via email. "The Bank of England is expected to hike years before the ECB."
The "currency cross" – a trade between two currencies that doesn't include the U.S. dollar -- wobbled slightly on Wednesday morning after the release of the minutes from the latest Bank of England policy meeting. Some market watchers had expected a dissenting voice at the bank but the document revealed a unanimous decision to keep its benchmark rate held at a record low of 0.5 percent.
The euro appreciated and traded at around 0.8011 against sterling but analysts said there was enough in the BoE minutes to suggest a rate hike could still be coming come this year.
Analysts at U.K.-based foreign exchange company World First predict a "gradual grind" lower through the year to a rate around 0.7875 for September. They also predict it'll be one of the "most crowded" trades of the summer. FOREX.com believe it will hit 0.7755 in the next three months and could, get to 0.75 by year end, while strategists at UBS think it'll be down to 0.78 by the beginning of September.