Friday saw EUR/GBP extend its losing streak for the third consecutive session, trading around 0.8410 during European hours. The Pound Sterling (GBP) exhibited significant strength against its major peers following Keir Starmer’s Labour Party’s decisive victory in the parliamentary elections, resulting in the most stable political conditions in the United Kingdom (UK) in recent years.
The British Pound’s outlook has improved with the stable government, leading to predictable fiscal policies and attracting substantial foreign investments. Furthermore, the UK’s new Chancellor, Rachel Reeves, has pledged to stimulate growth and investment with a major focus on the supply side, given the limited scope for government spending.
In May, the UK Gross Domestic Product (GDP) grew by 0.4% month-over-month, exceeding market expectations of a 0.2% increase. This unexpected growth has reduced the likelihood of an August rate cut by the Bank of England (BoE). Additionally, BoE Chief Economist Huw Pill highlighted that while a rate cut remains possible, concerns persist regarding high service prices and wage growth, according to Reuters.
In Europe, the Euro has found support amid easing concerns of a French financial crisis. Marine Le Pen’s far-right National Rally failed to maintain dominance over President Emmanuel Macron’s centrist alliance and the left-wing New Popular Front led by Jean-Luc Melenchon.
Additionally, diminishing expectations of consecutive rate cuts by the European Central Bank (ECB) have stabilized the Euro’s demand. Traders are scaling back bets on ECB back-to-back rate cuts as policymakers remain cautious about committing to a specific path of rate reductions, wary of potentially reigniting inflationary pressures.
UOB Group FX analysts Quek Ser Leang and Peter Chia suggest the EUR/USD pair is likely to trade within a range of 1.0845 to 1.0900. They anticipate continued upward movement in the Euro, though reaching 1.0915 may take some time.
In summary, while EUR/GBP continues its downward trend, the political stability in the UK and improved economic outlook have bolstered the Pound. Meanwhile, the Euro remains supported by reduced fears of a French financial crisis and cautious ECB rate policies.
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