EUR/GBP surges towards 0.8700 as Sterling slumps on soaring UK bond yields

The EUR/GBP pair advances to near 0.8685 during the European trading session on Tuesday. The pair strengthens as the Pound Sterling (GBP) underperforms its peers, following announcement from United Kingdom (UK) Prime Minister Kier Starmer that he will reshuffle his premiership after a difficult first year in office, BBC News reported.

UK PM Keir stated that changes in administration is not a reset of ministry, but a transition "to the second phase" of his government.

The announcement of UK ministry reshuffle has resulted in a sharp increase in Britain’s long-term bond yields. 30-year UK gilt yields surge to near 5.68%, the highest level seen since 1998. Rising bond yields have raised fiscal concerns, underpinning the need of tax raise or big spending cuts by administration in the upcoming Autumn Budget.

Meanwhile, the Euro (EUR) gains as higher-than-projected increase in the Eurozone Harmonized Index of Consumer Prices (HICP) data for August has undermined hopes of interest rate cuts by the European Central Bank (ECB) in the policy meeting next week. The headline HICP rose at an annual pace of 2.1%, faster than estimates and the July’s reading of 2%. In the same period, the core HICP – which strips off volatile food and energy items – rose steadily by 2.3%, faster than expectations of 2.2%.