Euro remains depressed against British Pound as France and Oil weighs

• EUR/GBP edges up above 0.8450 but remains close to 16-month lows at 0.8444.
• The pair has lost nearly 2% in just over two weeks, hammered by concerns about a credit crisis in France and surging Oil prices.
• German inflation data confirmed that prices accelerated in September, boosted by higher energy costs.

The Euro (EUR) shows a frail recovery attempt against the British Pound (GBP) on Tuesday but remains broadly bearish, after a nearly 2% selloff in just over two weeks. The EUR/GBP pair trades at the 0.8450 area after bouncing from 16-month lows at 0.8444, but rallies are likely to remain subdued with the crisis in France and the elevated Oil prices weighing heavily on the common currency.

The Euro is weighed down by an uncertain, volatile situation in France, with no clear end in sight. France’s ballooning debt has sent borrowing costs to levels unseen since the 2009-2011 financial crisis; a deadlocked government lacks the support to carry out any credible savings plan, and student protests are spreading throughout the country, reclaiming more resources for education.

Oil prices above $100 remain a heavy burden for the Euro

Beyond that, Oil prices remain at painful levels for the Eurozone’s Crude-importing economies, adding pressure on the Euro. Brent Oil edges lower on Tuesday but remains well above the critical $100 level, as tensions in the Middle East remain high while the Ukraine-Russia energy ceasefire announced by US President Donald Trump on Sunday came to nothing.

On the Macroeconomic front, German final Harmonized Index of Consumer Prices (HICP) data confirmed that inflation accelerated to 0.6% in September, from 0.2% in August, with the year-over-year rate jumping to 3.3% from 2.9% in the previous month. The release failed to move the Euro.

The Pound, on the other hand, is showing resilience amid the risk-off markets, as solid UK data and the high inflationary pressures have prompted some hawkish repricing by the Bank of England (BoE). “Until now, we had not expected the BoE to hike rates again. Recent developments, however, have led us to conclude that a November rate hike is now more likely than not," says Volkmar Baur, analyst at Commerzbank.