The British pound climbed to its strongest level against the euro in 17 months Monday as political and fiscal concerns in France weighed on the single currency while recent UK economic data provided support for sterling.
Sterling strengthened as far as 83.95 pence per euro, its strongest level against the common currency in roughly 17 months.
The move reflected pressure on both sides of the currency pair.
Political unrest in France has increased investor concern about the country’s fiscal position, while elevated European energy prices have added another complication for an economy already confronting high borrowing costs and weak growth.
Sterling, meanwhile, has benefited from stronger recent UK economic data and reduced concern over Britain’s immediate fiscal trajectory.
Against the U.S. dollar, however, the pound slipped slightly as the dollar strengthened broadly, showing that Monday’s move was concentrated primarily against the euro rather than representing a universal rise in sterling.
The Bank of England’s policy outlook remains another important variable. Governor Andrew Bailey has indicated that the transmission of higher energy costs into broader inflation has so far been limited, although policymakers continue monitoring price pressures.
Markets are also approaching the UK budget scheduled for October 28, which could influence expectations for government borrowing, gilt yields and future Bank of England policy.
For investors, sterling’s 17-month high against the euro reflects a widening difference in perceived political, economic and fiscal risk between Britain and parts of continental Europe.
The next test will be whether that advantage survives the UK budget and whether conditions in France stabilize enough to reduce pressure on European bonds and the euro.
