Euro extends decline against British Pound on France debt concerns

On Monday, the Euro (EUR) continued its decline against the British Pound (GBP), reaching its lowest level since mid-July. The EUR/GBP pair traded around 0.8478, slipping 0.24% from its intraday low of 0.8458. The decline was driven by political turmoil in France and mounting concerns over the country's public finances. France's high debt, widening budget deficit, and doubts about the government's ability to pass its 2027 budget led to a sharp sell-off in government bonds, contributing to the broader Eurozone financial instability.

This sell-off was accentuated by Spanish Prime Minister Pedro Sánchez's call for a snap election amid intensifying housing protests. Analysts at MUFG noted that the Euro's weakening trend started the week, with fears of destabilizing financial conditions in the Eurozone following the sharp sell-off in French government bonds. The Euro's yield spread over German Bunds widened to 140 basis points, almost 60 basis points wider than before the summer, signaling a sense of crisis in the French government bond market.

The European Central Bank's Transmission Protection Instrument, which allows the central bank to purchase bonds from individual Eurozone countries to maintain monetary policy transmission, faced criticism. ECB Chief Economist Philip Lane warned that rising long-term rates would slow growth and reduce pass-through by more than projected.