GBP/EUR Hits Two-Week Highs on UK Bond Yield Surge

The British Pound to Euro exchange rate has reached two-week highs near 1.1690 due to another surge in UK bond yields, which have pushed the Sterling's interest-rate advantage.

UK 10-year yields have hit fresh 19-year highs around 5.35%, but this move is double-edged for the Pound. On one hand, it provides attractive carry support, while on the other hand, it raises concerns over borrowing costs, fiscal policy, and the economic impact of tighter financial conditions.

The Bank of England (BoE) is expected to leave rates on hold at 3.75%, with a split vote inevitable. Goldman Sachs has changed its position, still expecting the BoE to hold rates this week but now predicting a rate hike in November due to recent increases in wholesale energy prices and strong growth data.

Rabobank expects a 6-3 vote for holding rates at 3.75% at the September meeting, with Barclays interest rate strategist Moyeen Islam noting that a surprise 25 basis-point rate hike cannot be ruled out.