Sterling Rises as France Falters, but the Calm May Not Last
2025-10-08
Sterling Breaks Higher
The pound has edged to its strongest level against the euro in three months, with GBP/EUR trading near 1.1550, comfortably above its short-term moving averages.
Momentum indicators show an overbought market RSI but the technical break above the 21-day EMA at 1.1490 signals a mini-uptrend that could test resistance at 1.1565.
As predicted in our Monday outlook, support sits at 1.1490, but there is limited fundamental data driving the move.
Momentum indicators show an overbought market RSI but the technical break above the 21-day EMA at 1.1490 signals a mini-uptrend that could test resistance at 1.1565.
As predicted in our Monday outlook, support sits at 1.1490, but there is limited fundamental data driving the move.
For now, the advance looks tactical, not transformational. The pound’s strength is relative, driven more by euro softness than any surge in UK optimism.
Euro Weakness, French Uncertainty
The euro remains under pressure as France’s political crisis deepens. With Prime Minister Lecornu’s resignation and President Macron facing internal rebellion, France is effectively operating without a stable government.
This raises questions about fiscal control and debt consolidation at a time when borrowing costs are already climbing. The European Central Bank won’t let France default, but markets are wary of the political vacuum.
This raises questions about fiscal control and debt consolidation at a time when borrowing costs are already climbing. The European Central Bank won’t let France default, but markets are wary of the political vacuum.
While the eurozone remains calm elsewhere, traders are watching for spillovers. If French yields continue to rise, the ECB may face renewed pressure to act, an uncomfortable echo of past crises. For insights into ECB policy thinking, see our analysis of central banking at a crossroads.
UK: The Same Storm, Different Boat
The UK’s fiscal story is hardly stronger. The Office for Budget Responsibility is expected to downgrade productivity forecasts and flag a widening deficit ahead of the November 26 Budget. Attempts to rein in spending have failed, and rising gilt yields, partly influenced by France’s turmoil, are pushing up UK borrowing costs.
As Lloyds Bank’s Sam Hill notes, the government’s “fiscal hole” could exceed £30 billion, forcing difficult choices on tax and spending.
As Lloyds Bank’s Sam Hill notes, the government’s “fiscal hole” could exceed £30 billion, forcing difficult choices on tax and spending.
This means sterling’s rise is less a show of confidence and more a mirror of shared weakness. Analysts at Société Générale and Rabobank still see GBP/EUR drifting toward 1.11–1.13 over the coming months as fiscal and policy divergence re-emerge.
Market Takeaway
The pound’s climb toward 1.1550 offers a short-term reprieve but little reassurance. The rally reflects temporary euro softness, not a revival of UK fundamentals.
With France in political disarray and the UK facing its own fiscal reckoning, the risk is that both currencies weaken together once markets refocus on debt and growth dynamics.
For businesses and investors, this remains a moment for composure, not complacency. Gains may fade as quickly as they came. Those with euro exposure should lock favourable levels while they last and keep an eye on November’s Budget as the next key turning point. For strategies to lock in exchange rates during volatile periods, see our comprehensive forward contracts guide.
With France in political disarray and the UK facing its own fiscal reckoning, the risk is that both currencies weaken together once markets refocus on debt and growth dynamics.
For businesses and investors, this remains a moment for composure, not complacency. Gains may fade as quickly as they came. Those with euro exposure should lock favourable levels while they last and keep an eye on November’s Budget as the next key turning point. For strategies to lock in exchange rates during volatile periods, see our comprehensive forward contracts guide.