Euro holds losses against British Pound amid French debt woes, high Oil Prices

• EUR/GBP holds near four-month lows at 0.8508, with upside attempts capped below the 0.8525 area.
• The Euro remains on its back foot as France's borrowing costs escalate to 24-year highs.
• Later in the day, Eurozone HICP data is expected to show that inflation accelerated further in September.

The Euro (EUR) edges lower against the British Pound (GBP) on Friday, set to complete its worst weekly performance in four months with a 1% sell-off, hammered by high Oil prices and mounting concerns about France’s fiscal health. EUR/GBP rallies were capped below 0.8525 on Thursday, with the four-month low of 0.8508 at hand, ahead of the release of the Eurozone’s consumer inflation data. 

Eurozone’s preliminary Harmonised Index of Consumer Prices (HICP) is expected to show that inflation accelerated further in September. Headline inflation is seen increasing to a 3.6% year-on-year (Y-o-Y) rate, from 3,.2% in August, while the core inflation is expected to show more moderate growth, to 2.5% y-o-y, from 2.4% in the previous month.

France's debt concerns are bleeding the Euro

These figures pose additional pressure on the European Central Bank to hike interest rates but are unlikely to lift the Euro as concerns about France’s soaring borrowing costs remain front and centre, as the gap between the German and the French bond yields surged beyond 140 basis points on Friday.

The French government presented its 2027 budget bill on Thursday, which includes measures to reduce its fiscal deficit, but the chances of success within a divided parliament are marginal.

Beyond that, Crude Oil prices keep escalating, as the conversation between the US and Iran to end a conflict that has already entered its seventh month remains stalled. Brent Oil is trading above $101.00 on Friday, up nearly 4% for the week, which poses significant pressure on the Eurozone’s economies.

The UK calendar is thin on Friday, but the Pound keeps drawing some support from hawkish comments by Bank of England (BoE) officials. Strategists at Rabobank, however, caution that “while higher short-term interest rates are a currency positive factor, we see little room for sustainable gains for the pound from this front given that more than 100 bps of policy tightening is priced in on a 12-month view.” In their view, the current market pricing leaves limited scope for further upside from the rates channel, and “it is more likely that GBP could soften as rate hike risks are reined in.”