Sterling reached a fresh 17-month high against the euro on Monday. The pound was up 0.25% at 84.11 pence per euro after reaching 83.95 pence earlier in the session, the strongest since May 2025. Sterling fell 0.05% against a broadly stronger dollar to $1.3327.
Street riots in France and elevated energy prices weighed on the euro. The euro fell after France experienced some of the country's worst unrest in years, adding to concerns about political stability. The spread between French OAT bonds and safe-haven German Bunds widened by a few basis points after the unrest. Natural gas prices climbed to a four-year high.
Recent strong economic data and fewer concerns about Britain's fiscal trajectory supported sterling. Data last week showed Britain's economy grew more strongly than expected in August. Views on the Bank of England's rate path were mixed after the data.
HSBC analysts said sterling is likely to fall against the dollar as a hawkish Federal Reserve contrasts with a still-vulnerable UK economy and a reluctant Bank of England. HSBC analysts said US interest rates may remain restrictive for longer, supporting the dollar. HSBC analysts said US activity and full employment offer a firmer foundation. However, HSBC analysts said UK growth momentum is fragile.
Bank of England Governor Andrew Bailey said on Friday that soaring energy prices so far appear to be having only limited wider effects on British prices. However, Bailey said drawing firm conclusions about the strength of these second-round effects remains premature. Commerzbank said the economy's resilience could give the Bank of England 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. However, recent market turmoil elsewhere suggests investors should avoid complacency, because doubts about Britain's fiscal trajectory could quickly undermine that confidence. HSBC said the October 28 budget adds further downside risks. HSBC said investors may avoid long positions in sterling until fiscal measures, gilt yields and credibility are assessed.
Sterling Hits 17-Month High Against Euro Amid UK Economic Growth
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Summary
Sterling hit a 17-month high against the euro on Monday, reaching 84.11 pence per euro, as on-chain data reflected improved UK economic momentum. August growth figures surprised analysts, lifting the pound amid euro weakness. The fear and greed index showed rising risk appetite, contrasting with French unrest and energy price pressures. HSBC noted the UK’s fragile recovery and BoE’s cautious stance, which may struggle against the Fed’s hawkish tone, favoring the dollar over sterling.
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