The Pound-Euro rate could stay supported if French fiscal concerns persist, although rising UK gilt yields may limit Sterling’s upside.
The Pound to Euro (GBP/EUR) exchange rate maintained a positive trajectory on Thursday, trading just below the 15-month high struck earlier in the week.
At the time of writing, the GBP/EUR exchange rate was trading at around €1.1806. A modest rise from the start of Thursday’s session.
Pound to Euro (GBP/EUR): 1.180062 (+0.03%)
Euro to Dollar (EUR/USD): 1.121089 (+0.09%)
DAILY RECAP:
The Euro (EUR) continued to face resistance on Thursday as renewed concerns over European energy prices and France’s deteriorating fiscal position weighed on sentiment towards the single currency.
Brent crude climbed back above $104 a barrel amid fresh supply concerns, adding to inflationary pressures across the Eurozone and contributing to another rise in regional bond yields.
France remained at the centre of the market’s concerns as investors continue to question the sustainability of France’s €3.5tn debt burden and the government’s ability to rein in its sizeable budget deficit, particularly as its government is seen as unlikely to push its spending cuts through parliament.
The Pound (GBP) traded with modest support on Thursday following a speech by Bank of England (BoE) Governor Andrew Bailey.
While the bulk of his speech focused on his calls for financial markets to better prepare for future fiscal shocks, he also touched on the need for monetary policy to focus on controlling target.
Bailey warned that inflation risks are set to rise the longer that energy prices remain elevated and that the BoE is ‘fully committed’ to returning inflation to target.
Near-Term GBP/EUR Forecast: Rising UK Bond Yields to Sap Sterling?
Turning to the end of the week, amid the ongoing turmoil in France investors are also likely to keep at least one eye on the UK bond market amid a continued rise in borrowing costs.
If Gilt yields continue to appreciate it’s likely to raise fresh concern about the fiscal headroom available to Chancellor John Healey in his upcoming budget, and potentially apply pressure to the Pound Euro exchange rate.
Meanwhile, EUR investors will look to speeches by European Central Bank (ECB) policymakers for fresh impetus on Friday, with the Euro potentially catching bids if a hawkish consensus strengthens ECB rate hike expectations.
Our currency coverage draws on live market data, official economic releases and published bank research.
