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Sterling came under fire after UK borrowing costs jumped to their highest since 2008. Editorial credit: Nigel J. Harris, via Shutterstock.
A sell-off in UK gilts (government debt) caused the pound to fall sharply against its main rivals yesterday. The yield on a gilt with a ten-year maturity rose to its highest level since 2008, raising concerns that government spending would very soon nudge against the tight fiscal headroom left by Rachel Reeves in the autumn budget.
As can happen in currency markets, these concerns set in motion a chain of seemingly innocuous events that would ultimately send the pound tumbling. By the end of the European session, GBP/EUR had lost almost a cent and GBP/USD more than a cent and a half.
This may all sound a little technical but it is the perfect evidence of the kind of volatility that marks currency transactions. To protect your upcoming transactions, secure a fixed exchange rate now with a forward contract or call your account manager on 020 3918 7255 to get started.
Another potential source of friction for European countries came from Donald Trump. Contrary to reports published just days previously, new rumours suggested the president-elect was mulling a new emergency economic declaration that would allow him to enforce indiscriminate tariffs on trade.
Last evening brought the latest meeting minutes from the Federal Reserve’s FOMC. The main talking point was Donald Trump, as policymakers voiced concerns that his tariff, tax and immigration problems would increase inflation and hinder economic growth.
Germany’s trade surplus meanwhile widened to €19.7bn in November, far surpassing forecasts and marking the largest trade surplus since August.
In global markets, the Chinese yuan fell to a 16-month low against the US dollar yesterday. Investors believe the Chinese central bank will be forced to cut interest rates aggressively to prop up the economy this year, while Trump’s tariff threats are weighing on the export-heaving manufacturing sector.
GBP: Borrowing costs sink pound
Panic spread through gilt markets yesterday. Sterling was the main loser, yet the latest bout of instability evokes uneasy memories of years gone by. Given how quickly sentiment can turn, many in the UK will be hoping it can make a swift recovery.
GBP/USD: the past year
EUR: GBP/EUR at lowest since November
A quieter day for the euro allowed to gain sizeable ground on the pound. GBP/EUR finished Wednesday at its lowest level in almost two months – a remarkable turnaround given the euro’s recent struggles.
GBP/EUR: the past year
USD: Dollar awaits more key data
Aside from against the pound, the US dollar moved little against its rivals yesterday ahead of a busy few days. After FOMC minutes, the US dollar will now look ahead to non-farm payrolls and unemployment for fresh direction.
EUR/USD: the past year
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