Investing.com — The British pound continued its recent decline against the dollar and euro on Monday, driven by growing investor concerns about fiscal sustainability in Britain, while government bond yields rose for a sixth day rose in a row.
Sterling depreciated as much as 0.7% against the dollar to reach $1.2103, its lowest level since November 2023. It later settled down 0.6% to $1.2125. Compared to the euro, the pound fell 0.2% to 84.10 pence.
The pound has become a focus of global currency traders due to the impact of rising global bond yields, mainly from the United States, on British markets. These rising interest rates stem from concerns about rising inflation and a reduced chance of interest rate cuts by the Federal Reserve.
Strong U.S. labor market data released Friday added fuel to global bond yields, prompting money markets to stop fully pricing in Fed rate cuts this year. While higher interest rates tend to strengthen the currency, analysts in Britain expect the government may have to cut spending or raise taxes to meet its fiscal rules, which could potentially affect future growth.
On Monday, UK ten-year government bond yields rose 4 basis points to 4.879%, slightly below last week’s 2008 high of 4.925%. Last week, yields were up more than 24 basis points, marking the biggest weekly rise in a year. Bond yields and prices have an inverse relationship. Britain’s 30-year yield reached a 27-year high on Monday, reaching 5.472%.
This week, attention is also likely to turn to British inflation data due to be released on Wednesday, which could impact the Bank of England’s monetary policy in the near term. Consumer prices are expected to have risen 2.6% annually in December, matching November’s figure, while the core CPI is expected to have fallen from 3.5% to 3.4%.
Futures markets are currently pricing in an easing of around 16 basis points at the BoE meeting in February, suggesting the probability of a quarter-point rate cut is around 65%.
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