The Euro (EUR) is experiencing a downturn against the British Pound (GBP) this Friday, having reached new lows not seen in two and a half months, hovering just above the 0.8500 mark. This decline represents a weekly drop of over 1%. A troubling mix of rising inflation in the Eurozone, elevated oil prices, and increasing borrowing costs in France is leading investors to hesitate. Consequently, the Euro is currently showing the lowest weekly performance among major currencies in the G8.
Recent data from Eurostat, released earlier today, indicates that the preliminary Harmonised Index of Consumer Prices (HICP) in the Eurozone surged in September to levels not witnessed in three years, primarily driven by increased energy prices linked to the ongoing conflict in the Middle East.
The overall HICP rose to a 3.8% year-on-year rate, up from 3.2% in August, surpassing the anticipated 3.6% growth. On the other hand, the core HICP—which excludes the effects of food and energy—saw a more modest rise, moving from 2.4% in August to 2.5%, aligning with market expectations.
Focus on French Debt
Concerns about rising borrowing costs in France are also a significant focus, as the gap between French and German government bond yields has widened to over 140 basis points, marking the highest difference since the Eurozone’s credit crisis back in 2012.
In an effort to address the fiscal deficit, the French government introduced the 2027 budget bill on Thursday. However, prospects for its passage appear dim due to the divided nature of parliament, with opposing parties eyeing opportunities to unseat President Macron in the upcoming elections.
Oil prices slipped on Friday, attributed to reports of supplies from Gulf nations nearing pre-war levels in September. Yet, this development isn’t providing much support for the Euro, especially with Brent Oil prices remaining close to the critical $100 threshold, significantly higher than figures noted in early July. Such pricing levels are expected to exert considerable stress on the economic growth of the region.
In the UK, with no major economic updates released, the Pound is still receiving some backing from the hawkish statements made by Bank of England (BoE) officials earlier in the week. Nevertheless, Rabobank strategists warn that “more than 100 bps of policy tightening is priced in on a 12-month view,” implying limited potential for further rising of the GBP through interest rate adjustments. They suggest that the currency might actually weaken if rate hike risks are tempered.
