Sterling slips from three-month high against euro as traders watch French bonds
TLT•Sterling eased against the euro as French bonds rallied, after a previous-session bond selloff had helped lift the pound to an almost three-month high. The euro was up 0.1% at 84.88 pence, while sterling was around 0.1% higher against the dollar at $1.322.
1. Currencies stabilize
The pound eased against the euro on Tuesday as French bonds recovered from the previous session’s fall. The euro had dropped sharply on Monday as investors worried that French public debt concerns and a looming election could spread market pressure to Italy. French bonds rose on Tuesday, pushing yields lower and helping currency markets stabilize.
2. UK rate outlook
The euro was last up 0.1% at 84.88 pence after reaching an almost three-month low of 84.61 pence on Monday, following seven straight sessions of declines. Sterling was around 0.1% higher against the dollar at $1.322. Bank of England officials are due to speak this week; Catherine Mann said inflation has become embedded in the UK, and Governor Andrew Bailey is scheduled to speak Thursday. Traders price in around an 80% chance of a November rate hike and around 100 basis points of total tightening by the end of next year.
3. Budget risks
The British budget on October 28 could cause swings in sterling and domestic bond markets. Morgan Stanley said the pound appears to price in too little fiscal risk and recommended betting on sterling to fall, targeting $1.285. Its strategists cited uncertainty around medium-term decisions and tax-hiking arithmetic.
