The pound sterling hit a 17-month high against the euro on Monday as political unrest in France and rising energy prices weighed on the single currency, while stronger-than-expected UK economic data supported the British currency.
Sterling rose to 83.95 pence per euro earlier in the session, its strongest level since May 2025. It was last up 0.25% at 84.11 pence per euro, according to Reuters.
The British currency also came under pressure against the US dollar, falling 0.05% to $1.3327 as the dollar strengthened against major currencies.
French unrest and energy prices weigh on euro
The euro weakened as France faced some of its worst unrest in years, raising concerns about political stability and prompting investors to reassess risks across European markets.
The spread between French government bond yields and safer German government bonds widened by a few basis points, reflecting increased investor concern.
Meanwhile, natural gas prices climbed to a four-year high, adding to pressure on the euro amid concerns about energy costs and their wider economic impact.
UK economic data supports the pound
The pound also benefited from recent data showing that the British economy grew more strongly than expected in August.
However, views remain divided over the Bank of England’s next interest rate moves. Some analysts believe the economy’s resilience could give the central bank room to raise rates without placing excessive pressure on growth.
Bank of England Governor Andrew Bailey said on Friday that higher energy prices appeared to have had only a limited impact on broader UK prices so far. He cautioned, however, that it was too early to draw firm conclusions about their longer-term inflationary effects.
HSBC analysts said sterling could weaken against the dollar, arguing that the Federal Reserve’s more restrictive monetary policy outlook contrasted with fragile UK growth and a cautious Bank of England.
UK budget could influence sterling outlook
Confidence that the British government can support economic growth while maintaining fiscal discipline has also helped the pound.
However, analysts warned that this confidence could be undermined if concerns about the UK’s public finances return.
HSBC said the government’s budget, scheduled for 28 October, could create further downside risks for sterling. Investors may remain cautious about taking positions on the currency until they have assessed the fiscal measures, government bond yields and the credibility of the government’s plans.
The pound’s recent gains against the euro therefore come amid continued uncertainty over both the UK economic outlook and political and energy-related pressures across Europe.
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