EUR/GBP depreciates to near 0.8400 due to stable political conditions in the UK

• EUR/GBP extends its losing streak as the Pound Sterling displays strength due to stable political conditions in the UK.
• This unexpected growth in the UK economy has diminished the likelihood of a BoE’s August rate cut.
• The Euro may gain ground on the back of reduced concerns about a French financial crisis.

EUR/GBP continues its losing streak for the third successive session, trading around 0.8410 during the European hours on Friday. The Pound Sterling (GBP) shows significant strength against its major peers following the outright victory of Keir Starmer’s Labour Party in the parliamentary elections, leading to the most stable political conditions in the United Kingdom (UK).

The outlook for the British Pound has improved, as a stable government results in predictable fiscal policies, attracting significant foreign inflows. Additionally, the UK's new Chancellor, Rachel Reeves, pledges to stimulate growth and investment with a major focus on the supply side due to the limited scope of government spending.

In May, the UK Gross Domestic Product (GDP) expanded by 0.4% month-over-month, surpassing market expectations of a 0.2% increase. This unexpected growth has diminished the likelihood of an August rate cut by the Bank of England (BoE). Additionally, the Bank of England Chief Economist Huw Pill emphasized that although a rate cut remains a possibility, concerns persist regarding high service prices and wage growth, according to Reuters.

In Europe, the Euro has found support amid easing concerns of a French financial crisis following Marine Le Pen's far-right National Rally's inability to maintain dominance over French President Emmanuel Macron's centrist alliance and the left-wing New Popular Front led by Jean-Luc Melenchon.

In addition to reduced fears of a French financial crisis, diminishing expectations of consecutive rate cuts by the European Central Bank (ECB) have stabilized the Euro's demand. Traders are scaling back bets on ECB back-to-back rate cuts as policymakers hesitate to commit to a specific path of rate reductions, concerned that an aggressive approach could reignite inflationary pressures.

UOB Group FX analysts Quek Ser Leang and Peter Chia suggest the EUR/USD pair is likely to trade within a range of 1.0845 to 1.0900. They anticipate continued upward movement in the Euro, though achieving 1.0915 may take some time.

Full article: EUR/USD may rise to 1.0915 in short term – UOB Group