Euro Slumps Against Pound Amid France Debt Fears
The Euro (EUR) continued its downward trend against the British Pound (GBP) on Monday, reaching its lowest level since mid-July. Political instability and growing worries about Europe's public finances are weighing heavily on the Euro. At the time of writing, the EUR/GBP exchange rate stood at 0.8478, down 0.24% on the day, after hitting an intraday low of 0.8458.
Concerns are particularly focused on France, where high debt levels, a widening budget deficit, and doubts about the government's ability to pass its 2027 budget have triggered a sharp sell-off in government bonds. Adding to the political turmoil, Spanish Prime Minister Pedro Sánchez has called a snap election amid intensifying housing protests.
Analysts at MUFG noted that the Euro has weakened at the start of the week due to 'intensifying fears over the destabilizing financial conditions in the Eurozone.' They highlighted a 'sharp sell-off in French government bonds,' which has encouraged a broad-based softening of the Euro. The single currency fell to fresh year-to-date lows against the US Dollar (USD) at 1.1161 and the Yen (JPY) at 176.41.
MUFG pointed out that the yield spread over German Bunds has widened to just over 140bps, nearly 60bps wider than before the summer. This rapid sell-off has heightened fears of fragmentation risks in the Eurozone, potentially impeding the transmission of monetary policy. ECB Chief Economist Philip Lane warned that a rise in long-term rates will slow growth and reduce pass-through by more than projected, while noting that a second wave of the energy supply shock poses upside risks to inflation and downside risks to growth.
On the data front, final Eurozone figures showed that the HCOB Composite PMI rose to 53.1 in September from 52.0, while the Services PMI climbed to 53.0 from 51.6. Meanwhile, the UK S&P Global Composite PMI was revised up to 52.0 from the preliminary estimate of 51.7, with the Services PMI coming in at 52.1, also above the initial reading of 51.7.