The pound traded at a three-week high against the euro on Monday, following Sunday’s election in France and projections on its outcome.
No single party or coalition has achieved a majority in Parliament and the outcome raises the risk of political gridlock in the euro zone’s second-largest economy.
In the U.K., new Finance Minister Rachel Reeves will pledge on Monday to take “difficult decisions”, in her first major speech following Labour party victory last week.
These difficult decisions include driving economic growth, including swift changes to unblock infrastructure and private investment, according to excerpts released by her Treasury department.
Since Labour’s landslide win on Thursday, the pound has strengthened by 0.5% against the euro EURGBP=D3, leaving the single European currency at 84.54, its lowest since June 14 on Monday.
“We doubt that fiscal prospects will have an impact on the pound just yet, while developments in French politics, US macro and Bank of England rate expectations will remain the largest sterling drivers,” ING strategist Francesco Pesole said.
The pound gained 0.4% against the dollar on Friday, after the monthly nonfarm payrolls report showed the U.S. economy generated jobs at a healthy rate in June. But signs of weakness are starting to emerge, which investors took as a sign the Federal Reserve will be more likely to cut rates sooner rather than later.
Sterling GBP=D3, which is best-performing major currency against dollar this year, was flat at $1.2809.
The Bank of England meets on Aug 1. Right now, markets are attaching a roughly 63% chance of a rate cut, particularly given how inflation has come down and the economy has not shown any major signs of deterioration. 0#BOEWATCH
BoE Monetary Policy Committee member Jonathan Haskel gives a speech later on Monday on inflation that will come under close scrutiny.
“Haskel delivers the first BoE speech since the election was called, and with many expecting a rate cur next month, his speech will be closely watched,” ADM Investor Services global economist Marc Ostwald said.
(With Inputs From Reuters)
