The Euro (EUR) extended its losing streak against the British Pound (GBP), marking its ninth consecutive day of declines and reaching a 16-month low. At the time of reporting, EUR/GBP traded around 0.8467 after touching an intraday low of 0.8447, the weakest level since June 2025 [1]. The primary driver behind the Euro's weakness is mounting concern over France's fiscal position, as investors question the government's ability to reduce its budget shortfall. Prime Minister Sebastien Lecornu has set a target to lower the deficit from 5.4% of GDP in the current year to 5% by 2027, but faces strong political opposition that could hinder the passage of the budget [1].
These fiscal concerns, coupled with a broader sell-off in global bonds, have led to a sharp rise in French borrowing costs as investors demand higher compensation for holding French debt. Bank of France Governor Emmanuel Moulin described the bond market situation as 'complicated' and characterized France's economic position as 'serious,' though he emphasized that the country is 'not in an economic crisis yet.' Moulin stressed the importance of passing the 2027 budget to reassure markets [1].
The turmoil in Eurozone bond markets is seen as a potential constraint on the European Central Bank's (ECB) ability to pursue aggressive monetary tightening, even as markets continue to price in further rate hikes due to persistent inflation risks from elevated energy prices [1]. On the GBP side, the Pound is trading lower against most major peers, indicating that the EUR/GBP decline is primarily a result of Euro weakness rather than Sterling strength. The Pound also faces pressure from concerns about the UK's fiscal outlook ahead of the October 28 budget, with Bank of England (BoE) rate-hike expectations providing limited support [1].
Rabobank analysts note that UK Prime Minister Burnham and Chancellor Healey have reassured markets that former Chancellor Reeves' fiscal rules will be maintained, implying that further tax increases are likely. Rabobank views this as negative for growth and voter sentiment, and highlights that the UK gilts market remains anxious due to the high proportion of government debt held by foreign investors, making GBP sensitive to negative fiscal news. However, Rabobank concludes that, despite the challenges facing Chancellor Healey, the UK's fiscal and political backdrop makes GBP less vulnerable to a sell-off against the Euro than it might otherwise be, given the situation in France and the Eurozone [1].
According to the latest data, the British Pound was the strongest performer against the Euro among major currencies today [1].
CONCLUSION
The Euro's slide to a 16-month low against the Pound underscores investor anxiety over France's fiscal outlook and broader Eurozone bond market instability. While both the Euro and Pound face fiscal headwinds, analysts suggest GBP is currently less exposed to sharp declines versus the Euro. Market sentiment remains cautious as fiscal and political developments in both regions continue to unfold.