EUR/GBP steady as France’s pension delay adds risks, UK rate cuts eyed

EUR/GBP trades flat for the day around 0.8710 on Wednesday at the time of writing, with markets balancing political risks in France and monetary prospects in the United Kingdom (UK). The pair’s stability reflects investor caution after French President Emmanuel Macron reappointed Sébastien Lecornu as Prime Minister and suspended the 2023 pension reform until after the 2027 presidential election.

While the move aims to ease ongoing political tensions, it also raises concerns about the government’s ability to maintain fiscal stability and pass the national budget. Investors doubt whether a weakened administration can ensure credible fiscal consolidation.

According to ING, although the suspension reduces the immediate risk of a no-confidence vote, it could undermine long-term market confidence in France’s fiscal discipline. OCBC notes that “the fragile situation still warrants caution for EUR bulls in the interim, though the broader fundamental outlook remains supportive of the Euro, suggesting a bias for buy-on-dips approach (but requires patience).”

From an economic standpoint, Eurostat data show that Eurozone Industrial Production fell by 1.2% MoM in August, after a 0.3% increase in July. On an annual basis, it rose by 1.1%, compared with 1.8% previously, highlighting a fragile industrial trend.

In the United Kingdom, the Office for National Statistics (ONS) reported on Tuesday that the Unemployment Rate rose to 4.8% in the three months to August, the highest since May 2021, while private-sector wage growth slowed to 4.4%, below expectations. These figures reinforced market expectations for further monetary easing by the Bank of England (BoE), with traders pricing in around 46 basis points of additional rate cuts by year-end, according to Reuters.