The Pound-Euro could stay elevated if French fiscal tensions persist, although dovish BoE commentary may limit Sterling’s upside.
The Pound to Euro (GBP/EUR) exchange rate got off to a positive start this week, climbing just shy of the 16-month high struck last Wednesday.
At the time of writing, the GBP/EUR exchange rate was trading at around €1.1833. Up around 0.2% from the start of Monday’s session.
Pound to Euro (GBP/EUR): 1.183332 (+0.17%)
Euro to Dollar (EUR/USD): 1.118165 (-0.18%)
DAILY RECAP:
The Euro (EUR) remained on the defensive on Monday as France’s mounting debt concerns remained front and centre ahead of an expected debate on the government’s latest budget.
France’s proposed 2027 budget faces a difficult passage through a deeply divided National Assembly, with the government seeking to rein in the deficit while facing opposition to its proposed spending cuts and tax measures.
The uncertainty has already pushed French borrowing costs sharply higher, with the premium investors demand to hold French government bonds over German Bunds reaching its widest level since the Eurozone sovereign debt crisis of 2011-12.
The risk is that further political deadlock could undermine confidence in the government’s ability to implement meaningful fiscal reforms, potentially spreading pressure to other Eurozone bond markets.
The Pound (GBP) ticked higher on Monday amid renewed hopes of closer UK-EU relations under Prime Minister Andy Burnham.
This optimism was strengthened by a BBC report claiming that Burnham will tell parliament that rejecting a closer relationship with the European Union would amount to a “dereliction of duty”.
Burnham’s comments come as the government seeks to negotiate a new agreement with Brussels ahead of a planned UK-EU summit on 20 November.
For GBP investors the prospect of closer economic integration with Europe will be welcomed with open arms, but the upside potential for Sterling remains limited as traders remain aware that any agreement may remain limited in scope at this time.
Near-Term GBP/EUR Forecast: Ongoing Turmoil in France to Extend Single Currency Selloff?
Looking ahead, the Pound Euro exchange rate is likely to remain highly sensitive to developments in France through the first half of this week.
Expect the single currency to remain under pressure as the parliamentary debate on the government’s budget get underway on Tuesday.
Meanwhile, remarks by Bank of England (BoE) policymaker Swati Dhingra have the potential to weak Sterling sentiment on Tuesday if she maintains her dovish outlook on monetary policy.
Our currency coverage draws on live market data, official economic releases and published bank research.
