Pound Surges to Three-Week High Amid French Political Uncertainty and UK Economic Moves

The pound reached a three-week high against the euro following France's hung parliament scenario. In the UK, Finance Minister Rachel Reeves plans economic reforms to boost growth. Sterling also saw gains against the dollar, driven by healthy U.S. job data and potential Federal Reserve rate cuts. Bank of England's anticipated decisions and comments from its MPC are under close observation.

The pound traded at a three-week high against the euro on Monday, as France's election indicated a hung parliament, heightening risks of political deadlock in the euro zone. Meanwhile, UK's new Finance Minister Rachel Reeves will commit to economic reforms to spark growth in her first major speech post-Labour's victory.

Since Labour's triumph on Thursday, the pound has risen by 0.5% against the euro, marking the European currency's lowest level since June 14. "Fiscal prospects might not affect the pound now, but French politics, US economics, and BoE rate expectations will," ING strategist Francesco Pesole noted.

The pound also increased by 0.4% against the dollar on Friday, reflecting strong U.S. job market data, although emerging weaknesses hint that the Federal Reserve may cut rates soon. Sterling remained steady at $1.2809, a significant milestone as it is the best-performing major currency against the dollar this year.

As the Bank of England's August 1 meeting approaches, markets see a 63% likelihood of a rate cut, especially with inflation easing and economic stability. BoE MPC member Jonathan Haskel's upcoming speech on inflation is anticipated keenly.

"Haskel's address is the first from the BoE since the election call, and expectations for an imminent rate cut make it highly significant," remarked Marc Ostwald, global economist at ADM Investor Services.

(With inputs from agencies.)