The euro gained ground against the British pound early Wednesday, with EUR/GBP rising toward 0.8700 amid mounting concerns over the UK’s fiscal outlook. The move comes ahead of a key speech by European Central Bank (ECB) President Christine Lagarde, which could offer fresh insight into the eurozone’s monetary policy trajectory.
Sterling remained under pressure following a sharp sell-off on Tuesday, as UK government borrowing costs surged to their highest level since 1998. The spike in yields has intensified scrutiny of the UK’s fiscal sustainability, adding pressure on Chancellor of the Exchequer ahead of the upcoming budget. “The moves reflect a broad concern about the fiscal outlook in the developed world,” said Valentin Marinov, head of G10 FX strategy at Credit Agricole. “The pound is once again seen as the pressure valve for wary investors,” he added.
Meanwhile, euro sentiment was supported by stronger-than-expected inflation data out of Germany and the broader eurozone. Preliminary readings for Germany’s Consumer Price Index (CPI) and the Harmonized Index of Consumer Prices (HICP) have prompted investors to reassess the likelihood of further ECB rate cuts. ECB board member Isabel Schnabel noted on Tuesday that current interest rates are already mildly accommodative and said she sees no compelling reason for additional easing.
