GBP v EUR holds onto yesterday's gains

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waterman

Written by Dan Waterman
October 7th 2025
Rising French bond yields sends UK bond yields higher..

The rise in French bond yields yesterday drew UK borrowing costs higher. But why?

Investors know that the UK government is in a similar position to France. It is unable to pass any reductions in spending through parliament.

The case and point being the failed attempt to cut benefit spending in June, saving the nation £5BN. 'Left-wing' members of Labour blocked the legislation from going through and Former French PM Lecornu resigned yesterday for similar reasons, citing a 'fragmented parliament'.

What happens next in France will have further ramifications on the Euro. 

France's bond yields have stabilised today, but they could move up at any moment and the question then is; by how much?

The French government needs money
, but if investors are not willing to provide it (due to a lack of faith they will get it back or they believe the return should be much higher in the circumstance), yields have to rise and this will devalue the Euro.  

Another headwind for the Euro arrived yesterday with talk of the OAT-Bund spread widening. This is the difference between the EU's two biggest nations; France & Germany. The wider the margin, the lower confidence there is in the French economy and its fiscal health. This poses a problem to France, the Euro-Zone and the Euro.

So, GBP v EUR may climb higher on this variable. BUT, we are talking less than 1% in all probability near-term. France is in the spotlight for now and seemingly in a worse position than the UK on the face of things.

But like all financial markets, the future is what matters and investors are fixed on the UK Budget as the main market driver and what it could mean for the UK & £'s future.