The British Pound Sterling enters December in a strong position against the Euro as it continues to feel the benefits of rising UK Gilt yields.
The GBP is jumping into the new month with solid gains against the Euro and a number of other currencies as it surges in lock-step with the US Dollar.
The Pound has moved in tandem with the US Dollar which is up by similar margins against the Euro and other currencies on the back of rising US Treasury yields.
Moving higher of rising bond yields in the UK and US in anticipation of a fiscal spending spree by the new President Trump has allowed Sterling to enjoy its best months trade against the Euro since 2009 having risen 4.5%.
While UK yields have risen in anticipation of higher inflation and a static Bank of England, the Euro has remained capped as Eurozone yields are kept low by the European Central Bank which continues to hoover up vast amounts of bonds.
This keeps bond prices high but yields low, and it is the yield that arguably matters from a currency perspective.
And this will in all likelihood continue to be the case in 2017 as analysts expect an extension of the ECB’s quantitative easing programme to be announced by as early as December, ensuring the currency simply fails to find support from its central bank.
The Euro also suffered as investors focus on a series of looming battles between eurosceptic populists and establishment parties at the European ballot box in 2017.
Sterling rallied against both the Euro and Dollar in month-end trade. Much of the Pound’s outperformance stemmed from strength against the Euro which spilled over and buoyed GBPUSD.
