- EUR/GBP drifts higher to around 0.8690 in Monday’s early European session.
- Mounting budgetary concerns in the UK might weigh on the GBP.
- S&P downgraded France’s credit rating from AA to A+.
The EUR/GBP cross gains ground near 0.8690 during the early European session on Monday. The Pound Sterling (GBP) softens against the Euro (EUR) on lingering fiscal concerns in the United Kingdom (UK). The European Central Bank (ECB) Isabel Schnabel and Joachim Nagel are set to speak later on Monday.
Growing concerns over the UK’s fiscal policy undermine the GBP and create a tailwind for the cross. UK Chancellor of the Exchequer Reeves confirmed that the government is not going to increase the wealth tax in the upcoming Autumn Budget scheduled next week. However, she clarified that there would be further tax hikes and cuts in public spending.
The Bank of England (BoE) Governor Andrew Bailey stated that any future rate cuts will be “gradual and careful”. Meanwhile, BoE Chief Economist Huw Pill advocated for a more cautious approach to additional rate reductions, citing persistent inflationary pressures. The cautious remarks from the UK central bank policymakers might help limit the GBP’s losses.
On the other hand, S&P Global Ratings downgraded France to A+ from AA-, per Bloomberg on Saturday. The downgrade means France has lost its AA- rating at two of the three major credit assessors in little more than a month, including downgrades from Fitch and DBRS. The budget uncertainty and political crisis in France might drag the EUR lower against the GBP in the near term.
