EUR/GBP edges higher above 0.8700 as UK fiscal worries grow

• EUR/GBP strengthens to near 0.8700 in Wednesday's early European session.
• UK borrowing costs hit their highest since 1998, the GBP falls on fiscal worries. 
• The ECB's Lagarde speech will be the highlight later on Wednesday. 

The EUR/GBP gains ground to around 0.8700 during the early European session on Wednesday. Concerns about the UK's ability to keep its finances under control undermine the Pound Sterling (GBP) against the Euro (EUR). Traders brace for the European Central Bank's (ECB) President Christine Lagarde speech later on Wednesday. 

The GBP and UK markets suffered a fresh sell-off on Tuesday, with the UK government's long-term borrowing costs reaching their highest level since 1998. These developments add pressure on the chancellor ahead of the budget. "The moves reflect a broad concern about the fiscal outlook in the developed world," said Valentin Marinov, head of G10 FX strategy at Credit Agricole. "The pound is once again seen as the pressure valve for wary investors," added Marinov.

On the other hand, the hotter-than-expected preliminary reading of Germany's Consumer Price Index (CPI) report and the Eurozone's Harmonized Index of Consumer Prices (HICP) led to uncertainty regarding future ECB actions and prompted investors to reassess the likelihood of ECB rate cuts. ECB board member Isabel Schnabel said on Tuesday that the interest rates are already mildly accommodative, adding that she does not see a reason for a further rate cut. 

Traders will closely monitor the developments surrounding French politics as French Prime Minister François Bayrou is expected to lose a confidence vote. Opinion polls from Reuters showed that most French people now want new national elections, pointing to deepening dissatisfaction with politics and a risk of lasting uncertainty. Fears of a French political crisis could exert some selling pressure on the shared currency in the near term.