Pound Sterling faces continued downside amid rising UK gilt yields
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Summary:
The Pound Sterling remains under intense pressure as surging UK gilt yields spark concerns over borrowing costs and potential fiscal tightening in the upcoming Autumn Budget. Investors shift focus to the US Nonfarm Payrolls (NFP) report for December, which could further influence the GBP/USD pair's trajectory.
UK gilt yields surge to multi-decade highs
The UK government’s 30-year gilt yields have climbed to 5.36%, their highest level since 1998. The spike has raised fears of increased borrowing costs and fiscal strain, pressuring the Pound Sterling against major currencies.
Key drivers of Sterling's decline:
Fiscal concerns: investors worry that Chancellor Rachel Reeves may resort to fresh borrowings despite her commitment to fund daily spending through tax receipts.
Inflationary pressure from US policies: anticipated policies by US President-elect Donald Trump could exacerbate stagflation risks in the UK economy.
Assurances from Treasury: UK Treasury Minister Darren Jones emphasized the government’s intent to borrow only for investment, downplaying the need for emergency fiscal measures.
Bank of England’s viewpoint on policy outlook
BoE Deputy Governor Sarah Breeden linked the rise in gilt yields partly to uncertainty surrounding Trump’s policy announcements. While acknowledging the need for gradual policy easing, Breeden suggested that current evidence supports a cautious withdrawal of policy restrictiveness.
Market movers: focus shifts to US Nonfarm Payrolls
The GBP/USD pair remains under pressure, trading near 1.2275 as investors await the US NFP report for December.
Expectations for the US NFP data:
Nonfarm Payrolls: Anticipated to add 160K jobs, a slowdown from November’s 227K.
Unemployment Rate: Expected to hold steady at 4.2%.
Wage Growth: Predicted to rise by 0.3% month-on-month, signaling steady consumer spending potential.
The Federal Reserve’s dovish stance, adopted in September 2024, reflects growing concerns over disinflation and labor market conditions. The NFP data will provide crucial insights into whether the Fed maintains its cautious approach toward rate cuts.
Technical analysis: bearish outlook for GBP/USD
The GBP/USD pair continues to hover near a multi-year low of 1.2250, with technical indicators suggesting further downside potential.
Key technical observations:
Exponential Moving Averages: The 20-day and 50-day EMAs, located near 1.2490 and 1.2630, respectively, are in a declining trend, reinforcing bearish sentiment.
Relative Strength Index (RSI): The 14-day RSI has dropped sharply to 30.00, signaling strong bearish momentum.
Support and Resistance Levels: Immediate support is seen at 1.2185, while the 20-day EMA at 1.2490 serves as a key resistance level.
Investor takeaway
The Pound Sterling remains vulnerable to further downside amid rising gilt yields and fiscal uncertainty in the UK. The upcoming US NFP report will likely shape short-term market sentiment for the GBP/USD pair. Investors should monitor developments closely as the broader outlook for the Cable remains bearish.
The Pound Sterling remains under intense pressure as surging UK gilt yields spark concerns over borrowing costs and potential fiscal tightening in the upcoming Autumn Budget. Investors shift focus to the US Nonfarm Payrolls (NFP) report for December, which could further influence the GBP/USD pair's trajectory.
UK gilt yields surge to multi-decade highs
The UK government’s 30-year gilt yields have climbed to 5.36%, their highest level since 1998. The spike has raised fears of increased borrowing costs and fiscal strain, pressuring the Pound Sterling against major currencies.
Key drivers of Sterling's decline:
Fiscal concerns: investors worry that Chancellor Rachel Reeves may resort to fresh borrowings despite her commitment to fund daily spending through tax receipts.
Inflationary pressure from US policies: anticipated policies by US President-elect Donald Trump could exacerbate stagflation risks in the UK economy.
Assurances from Treasury: UK Treasury Minister Darren Jones emphasized the government’s intent to borrow only for investment, downplaying the need for emergency fiscal measures.
Bank of England’s viewpoint on policy outlook
BoE Deputy Governor Sarah Breeden linked the rise in gilt yields partly to uncertainty surrounding Trump’s policy announcements. While acknowledging the need for gradual policy easing, Breeden suggested that current evidence supports a cautious withdrawal of policy restrictiveness.
Market movers: focus shifts to US Nonfarm Payrolls
The GBP/USD pair remains under pressure, trading near 1.2275 as investors await the US NFP report for December.
Expectations for the US NFP data:
Nonfarm Payrolls: Anticipated to add 160K jobs, a slowdown from November’s 227K.
Unemployment Rate: Expected to hold steady at 4.2%.
Wage Growth: Predicted to rise by 0.3% month-on-month, signaling steady consumer spending potential.
The Federal Reserve’s dovish stance, adopted in September 2024, reflects growing concerns over disinflation and labor market conditions. The NFP data will provide crucial insights into whether the Fed maintains its cautious approach toward rate cuts.
Technical analysis: bearish outlook for GBP/USD
The GBP/USD pair continues to hover near a multi-year low of 1.2250, with technical indicators suggesting further downside potential.
Key technical observations:
Exponential Moving Averages: The 20-day and 50-day EMAs, located near 1.2490 and 1.2630, respectively, are in a declining trend, reinforcing bearish sentiment.
Relative Strength Index (RSI): The 14-day RSI has dropped sharply to 30.00, signaling strong bearish momentum.
Support and Resistance Levels: Immediate support is seen at 1.2185, while the 20-day EMA at 1.2490 serves as a key resistance level.
Investor takeaway
The Pound Sterling remains vulnerable to further downside amid rising gilt yields and fiscal uncertainty in the UK. The upcoming US NFP report will likely shape short-term market sentiment for the GBP/USD pair. Investors should monitor developments closely as the broader outlook for the Cable remains bearish.