Sterling on track for biggest daily rise vs euro in months

Sterling Posts Strongest Daily Gain Against Euro as France Faces Fiscal Concerns

Market Movements and Fiscal Developments in Europe

By Stefano Rebaudo

Euro Weakens Amid French Fiscal Worries

Oct 5 (Reuters) - The euro was on track for a sixth straight daily loss against sterling on Monday, its sharpest decline since mid-July, as concerns about France's fiscal outlook continued to weigh on the single currency.

Sterling Strengthens on UK Fiscal Discipline

Sterling edged up against a strong dollar, buoyed by the British government's commitment to fiscal discipline and a more constructive approach to the European Union.

Political Context: UK and EU Relations

Prime Minister Andy Burnham, who campaigned to stay in the EU in a 2016 referendum on membership, has said the nation should again consider its options, including rejoining the bloc.

Euro Hits 17-Month Low Against Dollar

The euro slid to a 17-month low against the dollar as concerns about France's ability to rein in its budget deficit stirred fears of a return of sovereign debt crisis dynamics in the euro zone. 

The single currency dropped 0.41% — the biggest decline since July 15 — to 84.60 pence, the lowest level in almost three months.

Impact of UK Political Changes

The pound jumped in mid-July on expectations that Burnham, who became prime minister that month, would pick a fiscally conservative finance minister.

External Factors Influencing Markets

Energy Prices and Geopolitical Tensions

Energy prices, the Middle East conflict and their impact on the economy remained under the spotlight. Brent crude futures fell on Monday as rising Middle East crude exports and a release of oil stocks by the Group of Seven nations boosted supplies. 

Bank of England's Monetary Policy Outlook

The pound has risen since early last week, as remarks by Bank of England Governor Andrew Bailey and Deputy Governor Dave Ramsden supported expectations for tighter monetary policy.

Upcoming UK Budget

Analysts said markets have yet to turn their attention to the October 28 UK budget.

“Chancellor (John) Healey faces a difficult task on October 28 but the situation on the other side of the Channel suggests that sterling is less vulnerable to a selloff versus the euro than it would be otherwise,” Jane Foley, senior forex strategist at Rabobank, said.

Barclays wrote in a research note the pound was among the key beneficiaries from the widening in French spreads last week.

Other European Political Developments

In a separate European development on Monday, Spanish Prime Minister Pedro Sanchez called a snap election in a bid to strengthen his mandate after a fragmented parliament rejected key government housing decrees last week amid widespread protests.

(Reporting by Stefano Rebaudo; Editing by Hugh Lawson)