The pound strengthened on Monday, supported by political turbulence in France and Japan, reaching its highest level against the euro in nearly four weeks.
The euro fell to 86.74 pence — its weakest since September 18 — after France’s new prime minister, Sebastien Lecornu, and his cabinet resigned just hours after being announced. The euro–sterling pair, one of the world’s most heavily traded currency crosses outside the US dollar, was caught up in a wider sell-off in French stocks and bonds.
Traders are now watching for President Emmanuel Macron’s next move. Michaël Nizard of Edmond de Rothschild Asset Management warned that Macron “may be forced to announce a new dissolution [of Parliament] in the coming days,” which could push French interest rates higher and deepen pressure on the CAC 40, French banks, the euro, and other European assets.
Sterling also gained sharply against the yen, rising to 202.23 — its strongest level since July last year — as the yen weakened following the election of Sanae Takaichi as leader of Japan’s ruling party. Takaichi, a supporter of aggressive fiscal stimulus and loose monetary policy, is set to become the country’s next prime minister.
With little domestic economic data due this week, attention will turn to next week’s key releases that could shape the Bank of England’s policy outlook for the remainder of the year. Traders are also watching for signals ahead of the UK Budget expected in late November.
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