British Pound Sinks to 1-Year Low amidst Bonds Selloffs
The British pound or the sterling lost its strength as UK gilt selloffs deepened while yields continued to pop higher. The sterling fell to $1.22566, its lowest since November 2023, as concerns over the UK’s fiscal and inflation outlook pressured investor sentiment.
This drop came despite UK bond yields surging due to strong selloffs, with the 30-year yield at its highest since 1998 and the 10-year yield at levels unseen since 2008. The global bond market selloff has spread to U.K. government bonds and prompted investors to trim overweight sterling positions, ING’s Chris Turner says in a note.
The yield on the UK 10-year gilt surged in early January, nearing 4.8%, the highest level since August 2008, amid a broader rise in government bond yields driven by concerns over Trump’s policies and a hawkish Federal Reserve outlook.
The gilt selloff has dented sterling confidence, and there’s a risk that investors will further pare long positions–or bets on the currency rising–, ING Turner says. There aren’t “very strong reasons” for the fall in gilts to extend much further on local factors, although there’s “some modest downside risks” for sterling.
The pressure in the UK bond market has been further amplified by mounting investor concerns over the nation’s debt levels and the government’s ability to restore public finances while implementing its budget plans.
Typically, higher yields boost a currency, but the decline points to capital flight driven by fears of persistent inflation and fiscal instability.
Rising borrowing costs also strain Chancellor Rachel Reeves, whose fiscal flexibility is shrinking.
In late October, Chancellor of the Exchequer Rachel Reeves unveiled a new budget that included £142 billion in borrowing and a £74 billion increase in annual spending, raising alarms about fiscal sustainability.
Inflation fears also persist, with the consumer price index, wage growth, and inflation expectations rising. Traders are now anticipating only two quarter-point rate reductions by the Bank of England this year, compared to over three predicted a month ago.
A falling pound and rising yields indicate fiscal concerns. If the current moves continue, it “could potentially be evidence of a buyer’s strike or capital flight, analysts said. #British Pound Sinks to 1-Year Low amidst Bonds Selloffs The British pound or the sterling lost its strength as UK gilt selloffs deepened while yields continued to pop higher. The sterling fell to $1.22566, its lowest since November 2023, as concerns over the UK’s fiscal and inflation outlook pressured investor sentiment.
