Sterling has lost a lot of ground in the past 24hrs following a large sell-off in the UK bonds market.
The yield on 10-year gilts (i.e. % interest investors required to buy government bonds) rose to the highest levels in over 16 years (Aug 2008) and 30-year gilt yield to the highest since 1998! Although this move in bond markets is a global one, with US treasury yields driving a lot of this move, it appears the market are hitting the UK bonds harder due to ongoing concerns over the latest Labour budget with concerns it may lead to stagflation (i.e. weak growth and sticky inflation). This rise in bond yields (i.e. borrowing costs) may ultimately lead the BoE to have to keep rates higher for longer to control inflation and growth being hit.
Sterling has also been suffering from increased risk aversion in the market. Yesterday, CNN reported that Trump is contemplating declaring a national economic emergency to enable him to push through his new import tariff program. This would likely lead to a slowdown in global growth and likely heavily stoke US inflation levels.
As a result, the GBP/USD has fallen 3-cents this week and trades at a 14-mth low (Nov ’23). The GBP/EUR has fallen around 1.2% from yesterday morning and now trades around a 2-mth low. The EUR/USD trades around the lowest levels since November ’22.
