Pound outperforms Euro as UK-EU ties boost Sterling

The pound is now clearly outperforming the euro so far this week, with GBP/EUR breaking out of the range it has held for the best part of the last couple of months. While this is partly a euro story - a consequence of renewed fears over the widening in French spreads - domestic factors also appear to be at play.

PM Burnham's pledge to open a formal debate on the UK rejoining the European Union, a 180- degree pivot from his stance as recently as May - is being greeted positively by market participants, who still see a move towards closer UK-EU ties as a net positive for the pound following its sharp crash after the 2016 Brexit vote.

We don’t expect this to provide any lasting support for GBP, however, as another referendum is both fanciful and, in our view, highly unlikely to see the light of day.

There are no macroeconomic data releases on the docket in the UK today, so expect the pound to be driven almost entirely by news elsewhere, particularly the broad sell off in government debt. While fresh selling here could open up more downside in the GBP/USD pair, we think that Britain’s recent solid economic performance could keep the pound well bid relative to the euro.