The pound fell to its lowest level in 14 months, shaken by a bond market crash.
The pound fell on Thursday to its lowest level since the end of 2023, pressured by a global bond sell-off which pushed the British government’s borrowing costs to 16-year highs, reigniting concerns about Britain’s finances.
Sterling was last down 0.5% at $1.2305, after falling 1.6%to its lowest level since November 2023, while the cost of hedging against price swings over the next month jumped to its highest level since the March 2023 banking crisis.
Global bond yields soared this week due to concerns about rising inflation, reduced chances of lower interest rates, uncertainty about how US President-elect Donald Trumpwill carry out foreign or economic policy and the prospect of trillions of dollars in additional debt.
The British market had a strong impact
Yields on benchmark 10-year government bonds, or gilts, soared a quarter of a point this week alone to their highest level since 2008, as confidence in Britain’s fiscal prospects deteriorates. By Thursday afternoon in London, some of the selling pressure had eased, leaving yields unchanged at around 4.81%.
The minister of Finance, Rachel Reevesfaces its first big test, as turbulence in the bond market could force it to cut spending.
Normally, rising bond yields would support the pound, but now that relationship has broken down, reflecting investors’ concern about the country’s finances.
“The bond market is starting to discipline the British government. And at the moment they want to fight the market, and that never ends well,” said Lloyd Harris, head of fixed income at Premier Miton Investors.
In a statement issued late Wednesday, The British Ministry of Finance stated that it would maintain “tight control” over public finances.
Source: Ambito
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