Euro Hits Four-Month Low Against Pound Amid French Debt Woes

The Euro has continued its slide against the British Pound this week, with a 1% sell-off marking its worst performance in four months. The EUR/GBP exchange rate held near four-month lows at 0.8508, with attempts to rally capped below the 0.8525 area.

France's borrowing costs have surged to 24-year highs, adding to concerns about the Eurozone's fiscal health. High oil prices are also exerting pressure on the Euro, with Brent Oil trading above $101.00 and up nearly 4% for the week.

The Eurozone's consumer inflation data is expected to show a further acceleration in September, with headline inflation seen increasing to 3.6% year-on-year from 3.2% in August. The European Central Bank may be forced to hike interest rates in response, but this is unlikely to boost the Euro given the ongoing concerns about France's fiscal situation.

Some analysts believe that while higher short-term interest rates can support the Pound, there is little room for sustainable gains due to expectations of further rate hikes priced into the market. Strategists at Rabobank caution that the Pound could soften as rate hike risks are reined in.