UK fiscal worries send pound tumbling to new lows

The pound slumped to its lowest level against the dollar in more than a year, reflecting growing investor concerns about Britain’s fiscal and inflation prospects. According to Bloomberg, the pound fell 0.7% to $1.2280, its lowest level since November 2023.

Also Read: Dollar Hits All-Time Highs Amid Fed Signal

The pound’s sharp depreciation comes as UK 30-year bond yields surge to their highest levels since 1998, while 10-year bond yields also hit their highest levels since 2008. Valentin Marinov, group director at Crédit Agricole, said: “FX traders will continue to extract value from heightened FX volatility,” London-based of-10 FX Strategy said, pointing to continued uncertainty in the market.

Generally, rising interest rates tend to increase the attractiveness of a currency. However, the pound’s fall points to potential capital flight as investors become increasingly uneasy about the UK’s ongoing inflation and fiscal pressures. The market moves have been likened to a “micro” repeat of the UK’s financial turmoil in 2022, when the pound fell to historic lows and government borrowing costs soared, putting pension funds at risk.

While market structure has improved to avoid another crisis on the scale of 2022, there are concerns that the sell-off could intensify if the government’s fiscal policy does not adjust. Chancellor of the Exchequer Rachel Reeves faces growing pressure as rising borrowing costs eat into her 9.9 billion pound ($12.2 billion) fiscal buffer. Industry data from the IndexBox platform showed continued volatility in the foreign exchange market, highlighting that investor confidence in UK economic policy is at risk.

Source: IndexBox Market Intelligence Platform