The Euro (EUR) trimmed its losses against the British Pound (GBP) on Friday, rebounding from a 16-month low of 0.8447 earlier in the week to trade near 0.8500 at the European session opening. Despite this recovery, the EUR/GBP pair remains on track for a nearly 1.5% decline over a two-week losing streak, as French government bond yields, though easing from multi-decade highs, remain elevated due to political deadlock and ongoing student protests in France. The lack of a credible savings plan and the urging by Eurozone finance ministers and the European Central Bank (ECB) for France to approve its 2027 budget have added to market anxieties. Bank of France Governor Emmanuel Moulin stated that France does not need ECB assistance, a comment perceived as more concerning than reassuring by market participants [1].
High crude oil prices continue to weigh on the Euro, with Brent Oil trading at around $101.50, down from Thursday’s highs above $104.00 but still above the critical $100 level, which is seen as a stagflationary risk for Eurozone economies. In the UK, Bank of England (BoE) Governor Andrew Bailey noted that inflation risks are rising due to persistent high energy prices and reiterated the central bank's commitment to returning inflation to target, fueling speculation that the BoE may hike interest rates before year-end, thereby supporting the Pound [1].
Meanwhile, the British Pound is up 0.17% against the US Dollar (USD), trading around 1.3250 during the European session. This gain is attributed to a pullback in US Treasury yields, with the 10-year yield down 0.23% to near 5.22%, after reaching a two-decade high of 5.36% earlier in the week. The US Dollar Index (DXY) is also down 0.16%, trading just below 102.00, reflecting a weaker Greenback as risk-on sentiment prevails. S&P 500 futures are up 0.34% to near 7,8000, further indicating improved market sentiment [2].
Looking ahead, investors are focused on the upcoming US Consumer Price Index (CPI) data for September, scheduled for release on Wednesday. This data is expected to significantly influence Federal Reserve (Fed) interest rate expectations, as several officials have highlighted concerns about persistent inflation pressures, particularly from energy shocks and the ongoing buildout of Artificial Intelligence (AI). According to the Federal Open Market Committee (FOMC) minutes, there is a risk that AI-driven demand could outpace supply, adding further upward pressure on prices [2].
Technically, GBP/USD trades at 1.3243, maintaining a bearish near-term bias as it remains below the 20-day exponential moving average (EMA) at 1.3298. The Relative Strength Index (RSI) around 40 suggests weak downside momentum, indicating a pressured but not oversold market [2].
CONCLUSION
The Euro's modest recovery against the Pound is overshadowed by persistent concerns over French fiscal stability and high oil prices, while the Pound finds support from both BoE rate hike speculation and a risk-on global market mood. The US Dollar remains under pressure as Treasury yields retreat, with upcoming US inflation data poised to drive the next major market move. Overall, sentiment remains cautious amid ongoing macroeconomic and geopolitical uncertainties.