LONDON (Reuters) – The pound achieved its fifth weekly gain against the euro on Thursday, hitting its highest level in nearly two years against the European single currency, which has been rocked by political uncertainty in France.
The euro fell to its weakest level against the pound since late August 2022 this week after the success of far-right parties in European Union parliamentary elections over the weekend prompted French President Emmanuel Macron to call early voting in his country, spooking investors. .
The pound was already on the rise against the euro, which has already risen nearly 2.5% this year, largely on expectations that UK rates will remain above eurozone rates for some time.
On Thursday, sterling was last unchanged against the dollar at $1.2798 and steady against the euro at 84.44 pence.
Data on Wednesday that showed US inflation fell faster than expected in May triggered a dollar sell-off, lifting the pound 0.5%. The sell-off slowed after the US Federal Reserve released its forecasts for interest rates, economic growth and inflation.
The pound showed little reaction on Thursday to the opposition Labor Party’s manifesto, published ahead of the July 4 general election.
This week’s data painted a rather stagflationary picture for the British economy, with wage growth still running strong while economic growth stalled completely in April.
Traders expect at least one rate cut by the Bank of England this year, but it is unclear whether there will be a second cut.
The Bank of England will meet next week. Futures markets currently show traders pricing in a 75% chance of a rate cut by September, with the cut fully priced in for November.
“With market prices already so aggressive, there are risks of a larger market reaction if the Bank of England shows relative indifference to recent strong data. We still expect two Bank of England cuts this year in August and November,” said Nomura economists led by George Buckley. in the note.
Meanwhile, the pound sterling is steadily gaining strength. It is the only major currency to be in positive territory against the US dollar this year, up 0.5%. The closest competitor is offshore, which weakened by 2%.
In terms of trade, the pound is at its highest level since the Brexit vote in June 2016.