The euro extended its decline against sterling, with EUR/GBP touching a fresh 16-month low of 0.8442 and sliding 1.92% in under three weeks. The move came as the UK government signalled that new initiatives would be funded via higher taxes or spending cuts rather than additional borrowing, reinforcing the currency’s support. In the euro area, attention centred on France, where the public debt burden has risen to post-war levels and stoked concerns over credit stress. The European Central Bank president called for French fiscal consolidation and ruled out buying French bonds to lower borrowing costs.
Geopolitical Risks Impacting Energy Markets
Energy markets added pressure to the outlook. Brent held above $104 following reports of further attacks linked to Houthi forces and new Iranian tactics targeting vessels near the Strait of Hormuz, raising the risk of stagflation in the eurozone.
Sterling Strength and Key EUR/GBP Levels
Sterling has so far held up better, helped by strong UK data and hawkish Bank of England rhetoric that has lifted expectations of a possible rate rise at the November meeting, with monthly GDP and industrial production figures due Thursday. EUR/GBP has also dropped below July lows, while levels in focus include 0.8500, 0.8405, and 0.8370/0.8355.
