Euro strengthens against British Pound on UK political uncertainty, ECB hawkish signals

The EUR/GBP cross gains traction near 0.8665 during the early European session on Tuesday. The British Pound (GBP) weakens against the Euro (EUR) amid political instability in the United Kingdom (UK). Traders brace for the ZEW surveys from Germany and the Eurozone, which are due later on Tuesday. 

UK Prime Minister Keir Starmer is facing rising pressure to set a date for his departure after elections across much of the country resulted in massive losses for his ruling Labour Party. While Starmer stated he will not resign, the resulting political "noise" and rising UK gilt yields have created localized pressure on the GBP. 

On the Euro’s front, a hawkish stance from the European Central Bank (ECB) could underpin the EUR against the GBP. ECB Governing Council member Martin Kocher said on Monday that there’s no need to delay the interest rate hikes if energy prices don’t improve swiftly. 

Last week, ECB Executive Board member Isabel Schnabel bolstered expectations that the bank could raise interest rates as soon as next month, saying companies and households were now reacting in a concerning way to surging global energy prices. Financial markets are now pricing in a 92% chance of a 25 basis point (bps) hike at the June meeting, with a total of three hikes anticipated by the end of 2026, according to Reuters.