Euro hovers near 17-month low against the British Pound as debt woes weigh

The Euro (EUR) depreciates further against the British Pound (GBP) on Monday after dropping about 1.7% over the previous two weeks, as ongoing concerns about France's fiscal health keep investors on their toes. The EUR/GBP pair trades just above 0.8450 after rejection at the 0.8490 area on Friday, with the 16-month low of 0.8447 just a few pips away.

Investors are staying away from the Euro as the spread between the 10-year French OAT yield and the safer German Bund escalates to 137 basis points, its highest level since the 2012 financial crisis. The political deadlock in France, ahead of the presidential elections next year, and the social unrest spreading through the country are a toxic cocktail for investors that has crushed the Euro over the last few weeks.

ECB's Lagarde and UK GDP are the highlights this week

In the Calendar on Monday, the focus will be on the European Central Bank (ECB) and Bank of England (BoE) speakers. Trading volumes, however, are likely to remain at low levels amid a long weekend  in Japan and a partial holiday in the US.

In the Eurozone, on Wednesday, ECB President Christine Lagarde is expected to speak at a central bankers’ meeting in Bangkok, Thailand, and might provide some hints about the timing for the next interest rate hike.

In the UK, the highlight of the week will be August’s Gross Domestic Product (GDP) and Industrial and Manufacturing Production figures, due on Thursday. These numbers might attract particular interest this week, with investors looking for confirmation of the hawkish comments by BoE policymakers, including Governor Andrew Bailey in previous weeks.

Analysts at Commerzbank argue that the UK’s “improved growth outlook should make it easier for the Bank of England to raise rates further in order to lean against inflation.” Regarding the EUR/GBP's near-term outlook, Commerzbank points out that they expect "EUR/GBP to trade broadly sideways over the coming months.”