Pound Sterling extends losing spell as UK yields soar further
The Pound Sterling (GBP) extends its losing streak against its major peers at the start of the week. The British currency continues to face selling pressure as soaring yields on United Kingdom (UK) 30-year gilts deepen concerns over the nation’s economic outlook.
30-year UK gilt yields roar to near 5.47%, the highest level since 1998. Market experts view the surge in gilt yields as partly driven by the uncertainty over incoming trade policies by United States (US) President-elect Donald Trump, who is set to enter the White House on January 20, and the UK’s heavy reliance on foreign financing to address their funds’ demand for domestic spending.
"The more a country relies on foreign financing for its domestic debt issuance, the more exposed it is to the global environment," Deutsche Bank said and added that from the perspective of external flows, the UK is one of the “most vulnerable in the G10".
Soaring UK government’s borrowing costs have jeopardized Chancellor of the Exchequer Rachel Reeves’s decision to fund day-to-day spending through tax receipts and cut public spending. However, UK Treasury Minister Darren Jones clarified at the House of Commons on Thursday that the government's decision to only borrow for investment was "non-negotiable”.
Going forward, the next trigger for the Pound Sterling will be the UK Consumer Price Index (CPI) data for December, which will be released on Wednesday. The consumer inflation data will significantly influence market speculation about the Bank of England’s (BoE) monetary policy outlook. Currently, UK rate futures show that traders pare BoE dovish bets and see a 44 basis points (bps) interest rate reduction this year against the 50 bps recorded last week.
The Pound Sterling posts a fresh yearly low to near 1.2100 against the US Dollar (USD) on Monday. The GBP/USD pair weakens as the US Dollar strengthens as traders pare Federal Reserve (Fed) dovish bets this year after the release of the surprisingly robust US Nonfarm Payrolls (NFP) data for December.(Cay)
Source: Fxstreet
