- Pound (GBP) falls for a fifth day
- UK Gilt auction today will be a test for demand
- Euro (EUR) is rising further on French political optimism
- The French PM is trying to push the budget through
The Pound Euro (GBP/EUR) exchange rate is falling for a fifth straight day. The pair fell 0.03% in the previous session, settling on Monday at €1.1907. It traded in a range between €1.1869 and €1.1927. At 10:00 UTC, GBP/EUR trades -0.05% at €1.1901.
The EUR is pushing higher as France’s new government faces a big test today. Prime Minister Francois Bayrou is expected to announce in a speech a deal to water down the pensions reform in return for support from the left to pass the budget.
Bayrou’s government was formed last month following the collapse of Michel Barnier’s administration. Bayrou has been trying to win assurances from coalition parties, particularly the socialists, to push the Budget through.
This morning, the French stock market jumped over 1%, indicating optimism for a more stable political background.
Meanwhile, the French risk premium, measured by the yield gap between French and German 10-year yields, continues to trade near its highest level in over 12 years, suggesting that there is still some concern in the market.
The pound continues to trade under pressure. The ongoing fallout from Rachel Reeves’s budget in October has created a gloomy outlook for the UK economy.
While UK government bonds are arising today for the first time in a week, benchmark yields are still sitting near levels last seen in the financial crisis. A bond auction later today will be a key test.
Rachel Reeves will also speak in parliament this afternoon. This will be the first time she’s appeared since the market turmoil began last week.
Looking ahead, UK inflation data is due tomorrow and is expected to show consumer prices remained above target in December at 2.6%, a nine-month high.