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EUR/GBP falls below 0.8650 on fears over France’s political crisis

  • EUR/GBP loses traction to around 0.8645 in Monday’s early European session. 
  • Political uncertainty in France could undermine the Euro. 
  • Economists widely anticipate the BoE to hold the key rate at 4.0% on Thursday. 

The EUR/GBP cross attracts some sellers to near 0.8645 during the early European session on Monday. The fears of political turmoil in France drag the Euro (EUR) lower against the Pound Sterling (GBP). Traders will keep an eye on the UK employment report, which is due later on Tuesday. On Thursday, the attention will shift to the Bank of England (BoE) interest rate decision.

The shared currency weakens as the Fitch agency, one of the top global institutions gauging the financial solidity of sovereign borrowers, downgraded France’s credit rating on Friday from “AA-” to “A+.” This registered the country’s lowest level on record at a major credit rating agency. The move came days after François Bayrou resigned as Prime Minister after losing a parliamentary confidence vote over an attempt to get an austerity budget adopted.  

On the GBP’s front, the downbeat UK Gross Domestic Product (GDP) and factory data for July might weigh on the GBP and help limit the downside for the cross. The UK economy showed zero growth in July 2025 and a slight slowdown over the three months to July. 

The Bank of England (BoE) will keep its key policy rate on hold at its September meeting on Thursday. According to a majority of economists in a Reuters poll, all 67 economists in the September 8-11 poll expected the UK central bank to keep the bank rate on hold at 4.00%, while a strong majority pencilled in a quarter-point cut next quarter. Three economists forecast 50 basis points (bps) of reduction in the fourth quarter (Q4).

Pound Sterling FAQs

The Pound Sterling (GBP) is the oldest currency in the world (886 AD) and the official currency of the United Kingdom. It is the fourth most traded unit for foreign exchange (FX) in the world, accounting for 12% of all transactions, averaging $630 billion a day, according to 2022 data. Its key trading pairs are GBP/USD, also known as ‘Cable’, which accounts for 11% of FX, GBP/JPY, or the ‘Dragon’ as it is known by traders (3%), and EUR/GBP (2%). The Pound Sterling is issued by the Bank of England (BoE).

The single most important factor influencing the value of the Pound Sterling is monetary policy decided by the Bank of England. The BoE bases its decisions on whether it has achieved its primary goal of “price stability” – a steady inflation rate of around 2%. Its primary tool for achieving this is the adjustment of interest rates. When inflation is too high, the BoE will try to rein it in by raising interest rates, making it more expensive for people and businesses to access credit. This is generally positive for GBP, as higher interest rates make the UK a more attractive place for global investors to park their money. When inflation falls too low it is a sign economic growth is slowing. In this scenario, the BoE will consider lowering interest rates to cheapen credit so businesses will borrow more to invest in growth-generating projects.

Data releases gauge the health of the economy and can impact the value of the Pound Sterling. Indicators such as GDP, Manufacturing and Services PMIs, and employment can all influence the direction of the GBP. A strong economy is good for Sterling. Not only does it attract more foreign investment but it may encourage the BoE to put up interest rates, which will directly strengthen GBP. Otherwise, if economic data is weak, the Pound Sterling is likely to fall.

Another significant data release for the Pound Sterling is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought-after exports, its currency will benefit purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.

Author

Lallalit Srijandorn

Lallalit Srijandorn is a Parisian at heart. She has lived in France since 2019 and now becomes a digital entrepreneur based in Paris and Bangkok.

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