The British pound has hit its highest level against the euro since April 2022, amid expectations that the Bank of England (BOE) will be less aggressive in cutting rates compared to the European Central Bank (ECB).
On Tuesday, the pound sterling appreciated by as much as 0.3% to 82.50 pence per euro. At the same time, UK government bonds, known as gilts, fell, with 10-year bond yields rising to 4.33%, a peak not seen since November 28.
Market participants expect the BoE to maintain current interest rates at its upcoming policy meeting next week, with a cautious approach to any further rate cuts. Economic growth in Britain remains strong and inflation remains high in certain sectors.
In contrast, the ECB is expected to cut borrowing costs by 0.25 percentage points on Thursday to strengthen the eurozone economy.
Looking ahead to 2025, interest rate differentials between Britain and the eurozone are forecast to widen. Swap rates indicate an easing of 80 basis points by the BOE and around 125 basis points by the ECB.
The euro’s weakness has also been attributed to other factors, including the potential impact of US trade tariffs on the region’s merchandise exports and political uncertainty in France and Germany.
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