Pound strengthens to 2.5-year high against euro

The British pound rose to its highest level against the euro in more than two and a half years, as traders bet the Bank of England (BOE) will adopt a less aggressive stance on interest rate cuts compared to the European Central Bank (ECB).

Sterling strengthened as much as 0.3% to 82.50 pence per euro on Tuesday, a level last seen in April 2022. Gilts fell across the curve, with the yield on 10-year notes rising to 4.33%, the highest since Nov. 28, News.Az reports, citing foreign media.

Traders expect the BOE to stay on hold in its last policy meeting of the year next week, and remain cautious about lowering rates further. Growth remains robust and inflation is still elevated in some sectors. The ECB, meanwhile, is widely seen cutting borrowing costs by a quarter point on Thursday to support the bloc’s economy.

The interest-rate differential between the UK and the euro area is expected to widen further next year. Swaps imply 80 basis points of easing from the BOE in 2025 and about 125 basis points from the ECB.

The euro has also been dragged lower by the risk of US trade tariffs hitting the region’s goods exports. Political turmoil in the bloc’s two biggest economies are also clouding the outlook for growth.

News.Az