EUR/GBP rises to late-July highs amid UK fiscal strains and political uncertainty

• Euro gains ground against the Pound amid UK fiscal and political uncertainty.
• German GfK Consumer Confidence beats forecasts, with income expectations improving.
• UK government borrowing reaches a five-year high for August, raising deficit and debt concerns.

The Euro (EUR) strengthens against the British Pound (GBP) on Thursday, with EUR/GBP trading around 0.8740 after briefly touching its highest level since July 28 earlier in the day. Sterling remains under pressure as investors grow wary of the UK's fiscal outlook, while the Euro finds modest support from improving German sentiment data, keeping the cross biased to the upside.

The GfK Consumer Confidence Survey for October improved to -22.3, beating expectations of -23.3 and rising from -23.5 in September. The gain was driven by stronger income expectations, though household willingness to spend and economic outlook gauges weakened further.

Remarks from the European Central Bank (ECB) also helped steady the Euro. Executive Board member Piero Cipollone said on Wednesday that "we are doing pretty well" and that growth is expected to remain "in a good place in the coming years" thanks to solid fundamentals and a resilient labour market. He added that uncertainty persists, but described the risks to inflation as "very balanced," with expectations "well anchored" and inflation set to remain close to the target over the next two years.

On the UK side, fiscal credibility concerns continue to dominate. Government borrowing surged to £18 billion in August, the highest for that month in five years, while weak demand at recent gilt auctions has underlined investor unease.

Markets remain cautious about how Chancellor Rachel Reeves will manage the rising deficit ahead of the November budget. Political uncertainty, including Labour leadership tensions and new spending proposals, is adding to the pressure and weighing on the Pound.

Meanwhile, the Bank of England (BoE) struck a cautious tone in mid-week remarks. MPC member Megan Greene argued that "a cautious approach to rate cuts is justified," noting that supply shocks should not simply be ignored. Governor Andrew Bailey reiterated that while further easing remains possible, the timing and scale will depend strictly on the inflation outlook.