GBP/EUR exchange rate midweek update: pound strengthens against euro amid political uncertainty in France
The pound euro (GBP/EUR) exchange rate strengthened after the single currency felt the weight of political instability in France in the wake of the final round of voting.
(08/07/2024 to 10/07/2024)
Monday
The pound euro (GBP/EUR) exchange rate struck a 12-day high in the 1.18 mid-range before retreating amid limited data.
The UK currency was buoyed by comments from new finance minister Rachel Reeves, who set out plans to drive economic growth, including increasing house building and unblocking infrastructure projects.
The euro was pressured by the final round of France’s election on Sunday. The results confirmed that a left-wing alliance called New Popular Front and President Macron’s centrists pushed the far-right National Rally (RN) party into third place.
France now faces a hung parliament after no party won a majority – political gridlock that dented the euro.
Tuesday
The pound traded in a narrow range against the euro just above 1.18.
Political instability in France was accentuated by a data lull in the Eurozone. Market relief that the RN party, and its ‘unsustainable’ fiscal policies, languished in third place was offset by concerns over a hung parliament.
The UK currency edged higher after Bank of England (BoE) policymaker Jonathan Haskel expressed his reservations about an interest rate cut in August: “The labour market continues to be tight, and I worry it is still impaired. I would rather hold rates until there is more certainty that underlying inflationary pressures have subsided sustainably.”
Wednesday
The pound rallied following hawkish remarks from BoE Chief Economist Huw Pill: “It is hard to dispute the case that inflation persistence in the UK continues to prove - well - persistent,”
Pill added: “The MPC needs to ensure that the degree of cumulative restriction in the monetary policy stance is sufficient to ensure that the persistent dynamic in recent inflation indicators is squeezed out of the system.”
Investors subsequently scaled back their expectations for an interest rate cut in August to 50%, down from two-thirds earlier in the day – causing the pound to climb higher into the 1.18 mid-range.
Looking ahead
The GDP print for May hits the headlines on Thursday but is unlikely to have a significant market impact ahead of next week's crucial inflation and labour market figures.
The main catalyst for euro movement could be the latest German inflation data, scheduled for release on Thursday. Confirmation of stubborn inflation in the bloc’s largest economy could support the single currency.