Euro is heading for its weakest month against the pound in more than four years amid concerns over France's budget and politics, while British bonds strengthen.
Euro is heading for its weakest month against the pound sterling in more than four years. The reason was concerns about France's prospects, while British bonds are rising after the budget presentation in London.
The comparison of France's shaky political and budgetary position with Britain's relative stability became particularly noticeable after this budget. Prime Minister Andy Burnham presented his first budget, which reassured investors. Gilt yields this week fell to 5.25 percent — a five-week low — and bonds are heading for the strongest monthly decline since May. Citigroup strategists on Friday raised their recommendation on gilts to 'above market'.
Chris Jeffery, chief investment strategist at Legal & General, noted that Britain is starting to look like the most responsible player in terms of fiscal discipline. According to him, the budget achieved its goal and maintained trust.
On Friday, the euro fell against the pound to a low since April 2025. In October, the currency depreciated by more than two percent — this is the worst result since July 2022 and stronger than any other currency of the Big Ten.
France's struggle with the budget deficit caused sharp movements in the bond market: borrowing costs reached a 25-year high, putting pressure on the euro. The country was engulfed in protests over the education system and cost of living, and national elections will be held next year.
Marcus Jennings, strategist at Wells Fargo, pointed out that growth rates in the eurozone are weakening, while Britain continues to pleasantly surprise. He expects the pair to fall to almost 0.83 by the end of the year.
Better-than-expected British economic data supported the pound, and the IMF this month raised its forecast for the country's economic growth. However, Britain also has budgetary problems that are putting pressure on bonds, and many investors doubt that the government will be able to contain spending.
Jane Foley, head of G10 currency strategies at Rabobank, noted that France's problems have presented the pound in a relatively positive light. She expects political risks to pressure the euro next year as well.