Investing.com – The British pound fell to its lowest level in more than a year on Thursday as confidence in the country’s budget prospects fell amid soaring borrowing costs.
At 08:10 ET (13:10 GMT), it fell 0.7% to $1.2285, hitting its weakest level since November 2023. It rose 0.5% to 0.8385 and rose to its highest level since September last year.
Sterling is on track for its biggest three-day fall in almost two years, following UK government bond yields hitting multi-year highs.
Higher bond yields would normally support the country’s currency, but there are fears that the rising costs needed to support Britain’s government debt could lead to further tax increases or spending cuts, hampering the chances of an economic recovery.
The new Labor government has imposed a new no-borrowing rule to finance day-to-day spending, but this is now under threat.
Finance Minister Darren Jones told the House of Commons earlier Thursday that there is “no need for an emergency intervention” in the financial markets.
Markets “continue to function in an orderly manner” and movements in government borrowing costs were driven by “a wide range of international and domestic factors,” he added.
The mere mention of government intervention has made currency traders nervous.
“The sell-off in the global bond market hit a nerve in the government bond market and the widening of government bond spreads subsequently prompted investors to unwind their overweight positions in the British pound,” ING analysts said in a note note.
“Perhaps most relevant to the GBP is the positioning data, with investors believing that sterling was best able to withstand the prevailing strong dollar trend.”
