Sterling Climbs as French Debt Fears and Strong U.K. Data Converge

The Office for National Statistics reported the U.K. unemployment rate dropped to 4.7% in the three months to August, outperforming analyst expectations of 4.9%. With wage growth accelerating to 3.7% and payrolls expanding by 13,000 in September, markets are pricing in a 96% probability of a 25 basis-point rate increase from the Bank of England in November. MUFG Bank analyst Lee Hardman noted that these figures provide the central bank with clear momentum to tighten policy.

Conversely, the euro slipped to 0.8398 pounds as French government bonds faced a sell-off. The yield spread between 10-year French and German debt widened to 153.17 basis points, reflecting fears that the European Central Bank may be forced into a prolonged accommodative stance to stabilize yields. The French National Assembly faces a tense vote on its 2027 draft budget, while investors brace for a potential Moody’s credit rating review on Friday that could threaten France's AA status. Analysts at ING warn that even if the budget bill passes, the influx of amendments from both political extremes leaves the market unconvinced of long-term fiscal health.