The pound is poised for its worst monthly performance against the euro in more than a year, and is at risk of falling further, in part because of Europe's better position in dealing with higher energy prices than the UK.
Derek Halpiny, head of European global markets research at MUFG Bank, predicts that the single currency will rise to 0.8800 against the pound sterling in the coming weeks. This will be its highest level since February 2021'.
The euro rose 2.2% against the pound sterling this month through Tuesday, even as the two currencies traded against the U.S. dollar.
Halpenny believes the euro will rise further amid uncertainty over whether Conservative Party leadership candidates Liz Truss and Rishi Sunak can offer enough policies to protect the British economy and support families amid the cost-of-living crisis, as the EU prepares to intervene in the short term to mitigate rising energy costs.
Halpenny added that besides the looming energy crisis, the prospect of an ECB hike in interest rates next month could also push the euro higher against the pound, amid growing speculation that the ECB will take a similar approach to the Fed in tightening its monetary policy.
