The pound hit a 22-month high against the euro, following a sharp rise the previous day, and remained virtually unchanged against the dollar on Wednesday as investors await U.S. inflation data and the outcome of the meeting Federal Reserve policy on Wednesday.
The single currency fell on Monday after eurosceptics’ gains in the European Parliament elections and France called elections.
With a potential right-wing victory in France, the political landscape could pose significant challenges to the European Union’s efforts to deepen integration, weakening the euro.
The UK labor market showed further signs of cooling in April, with the unemployment rate rising, but failed to trigger significant price action in the British currency.
The dollar hovered near a one-month high against the euro as traders braced for U.S. data and Fed rate forecasts.
The pound rose 0.25% to 84.33 pence per euro, its highest since August 2022.
It was up 0.05% at $1.2738.
Derek Halpenny, head of global markets research at MUFG, pointed out that the euro broke important technical support at 0.8500, which has been tested and held over the past year.
He expects the single currency to move back into the 0.8500-0.8600 trading range if Marine Le Pen’s National Rally (RN) fails to become the largest party in France and falls towards early 2022 lows , close to 0.8300, if the RN party becomes the largest party but fails to form a majority in Parliament.
According to forecasts on Monday, the RN party would win the flash elections in France, but would fail to achieve an absolute majority.
“The pound has largely kept pace with the data, because while rapid wage growth could delay the start of the Bank of England’s interest rate cuts, rising unemployment has not bodes well for the UK’s growth prospects,” said Matthew Ryan, head of market strategy at global financial services firm Ebury.
Money markets priced in a 40% chance of a 25 basis point BoE rate cut in August, while they more than fully priced in the same move in November.
