The euro fell and the spread between French OAT bonds and safe-haven German Bunds widened by a few basis points after France was rocked by some of its worst unrest in years, adding to concerns over political stability. At the same time, natural gas prices climbed to a four-year high.
The pound was up 0.25% at 84.11 pence per euro, after hitting 83.95 pence earlier in the session, the strongest since May 2025.
It dropped 0.05% against a broadly stronger dollar, to $1.3327.
Views on the Bank of England’s rate path were mixed after data last week showed Britain’s economy grew more strongly than expected in August.
Analysts at HSBC said sterling/dollar is likely to move lower as a hawkish Federal Reserve contrasts with what they called a still vulnerable UK economy and a reluctant Bank of England.
“US rates may remain restrictive for longer, supporting the dollar, while US activity and full employment offer a firmer foundation. By contrast, UK growth momentum is fragile,” they added.BoE Governor Andrew Bailey said on Friday that soaring energy prices so far appear to be having only limited wider effects on British prices, but it is too soon to draw firm conclusions about how strong these second-round effects will be.
According to Commerzbank, the economy’s resilience could give the BoE room to raise rates without risking undue pressure on growth.
Confidence that the British government can deliver growth without abandoning fiscal discipline supported the pound.
Yet recent market turmoil elsewhere suggests investors should be wary of complacency, as doubts over Britain’s fiscal trajectory could quickly undermine that confidence.
According to HSBC, the October 28 budget adds further downside risks and investors may avoid long positions in sterling until fiscal measures, gilt yields and credibility are assessed.
