LONDON (Reuters) – The pound is headed for its fifth weekly gain against the euro on Thursday, after hitting its highest levels in almost two years against the single European currency, which was rocked by political uncertainty in France.
The euro fell to its lowest level against the pound since late August 2022 this week, after the success of far-right parties in the European Union parliamentary elections at the weekend prompted French President Emmanuel Macron to call an early vote in his country, unnerving investors. .
The pound has already been on the rise against the euro, which has already appreciated by about 2.5% so far this year, much of it based on expectations that UK interest rates will remain higher than those in the eurozone for some time to come.
The pound sterling stabilized on Thursday against the dollar at $1.2798 and settled against the euro at 84.44 pence.
Data released on Wednesday showing US inflation slowing more quickly than expected in May led to heavy dollar selling, which strengthened the pound by 0.5%. The selling slowed after the US Federal Reserve released its forecasts for interest rates, growth and inflation.
On Thursday, the pound offered little reaction to the opposition Labor Party's statement issued ahead of the general elections scheduled for July 4.
Data this week painted a somewhat stagnant inflationary picture for the UK economy, with wage growth continuing to run hot, while economic growth ground to a halt in April.
Traders expect at least one interest rate cut from the Bank of England this year, but the jury is out on whether there will be a second cut.
The Bank of England meets next week. Futures markets are currently showing that traders are placing a 75% chance of a cut by September, with the full cut for November.
“With market rates already so tight, there are risks of a bigger market reaction if the BoE appears relatively unconcerned about the recent strong data,” Nomura economists led by George Buckley said. “We still expect two cuts from the BoE this year in August.” And November.” In a note.
At the same time, the British pound was steadily gaining strength. So far this year, it is the only major currency in positive territory against the dollar, with a 0.5% rise. The closest competitor is Abroad, which weakened by 2%.
On a trade-weighted basis, the British pound reached its highest levels since the Brexit vote in June 2016.