Euro extends losing streak against British Pound, hits 16-month low

EUR/GBP trims part of its intraday decline on Wednesday but remains on the back foot for the ninth consecutive day as concerns over France’s fiscal position weigh on the Euro (EUR). At the time of writing, the cross trades around 0.8467 after falling to 0.8447 earlier in the day, its lowest level since June 2025.

France’s fragile fiscal outlook continues to undermine the shared currency as investors question the government’s ability to reduce its budget shortfall. Prime Minister Sebastien Lecornu aims to lower the deficit from 5.4% of Gross Domestic Product this year to 5% in 2027, but strong political opposition could make it difficult to pass the budget.

These concerns, combined with a broader sell-off in global bonds, have driven French borrowing costs sharply higher as investors demand greater compensation for holding the country’s debt. Bank of France Governor Emmanuel Moulin described the situation in bond markets as “complicated” and said France’s economic position is “serious,” although the country is “not in an economic crisis yet.” He added that passing the 2027 budget is “very important to reassure the market.”

Turmoil in Eurozone bond markets could limit the scope for aggressive tightening by the European Central Bank (ECB). Even so, markets continue to price in additional rate increases as elevated energy prices keep inflation risks tilted to the upside.

On the other side of the cross, the British Pound (GBP) trades lower against most of its major peers, suggesting that the decline in EUR/GBP is mainly driven by broader Euro weakness. Sterling also faces pressure from concerns over the UK’s fiscal outlook ahead of the October 28 budget, while Bank of England (BoE) rate-hike bets provide little support.

Rabobank notes that both Prime Minister Burnham and Chancellor Healey “have provided reassurances that former Chancellor Reeves’ fiscal rules will be adhered to.” In the bank’s view, the clear implication is that “taxes are likely to be raised again,” a prospect it judges as “neither constructive for the growth outlook nor for voters’ reactions.”

Against this backdrop, Rabobank argues that “the UK gilts market is likely to remain anxious.” The bank highlights that “a relatively high proportion of UK government debt is held by foreign investors, who tend to be more reactive to ‘poor’ news,” leaving “GBP… particularly sensitive to UK budget concerns.” Even so, Rabobank concludes that while “Chancellor Healey faces a difficult task on October 28,” the fiscal and political backdrop “on the other side of the Channel suggests that GBP is less vulnerable to a sell off vs. the EUR than it would be otherwise.”