Sterling falls for fourth straight day to hit 14-month low after US jobs data, 30-year gilts highest since July 1998
- Sterling fell for the fourth day in a row and better-than-expected US jobs data intensified the move. Gilt yields rose for a fifth consecutive day.
British currency remained under pressure on Friday, January 10, from high global borrowing costs. Sterling fell for the fourth day in a row and better-than-expected US jobs data intensified the move. Meanwhile, gilt yields rose for a fifth consecutive day. After recording a moderate decline earlier in the day, the pound continued its slide. Gilt yields jumped after US government data showed employers added more jobs than expected in December.
The pound was down 0.53 per cent after briefly touching $1.2194, its lowest since November 2023. 10-year gilt yields were up three basis points (bps) to 4.84 per cent, down from the session high of 4.889 per cent. British 30-year gilt yields rose 6.8 bps on the day to 5.447 per cent- their highest since July 1998. Yields remained below Thursday's high of 4.925 per cent, their highest since 2008.
Sterling hits 14-month low after US jobs data
The UK has been among the markets hardest hit by a surge in global borrowing costs, which most analysts say originated in the US due to concerns about rising inflation, reduced chances of a drop in interest rates, and uncertainty over how US President-elect Donald Trump will conduct foreign or economic policy.
That has sent benchmark US 10-year Treasury yields soaring to their highest since November 2023, propped up the dollar and sent ripples through other currencies and stocks. Traders on Friday also bet the US Federal Reserve will wait until at least June to reduce its policy rate.
However, British markets have been among the most impacted, with sterling losing 1.5 per cent on the week, gilts underperforming peers, and domestically focused stocks also struggling. The next inflation report on Wednesday will be crucial for gilt investors assessing the risks. Investors will be eyeing a £4 billion sale of 2034 gilts next week for any signs that demand in the primary market is waning.
According to reports, the pound has also lost about one per cent against the euro this week. Euro zone bond yields have also risen, but the yield gap between British 10-year gilts and German 10-year bonds—a gauge of the premium investors demand to hold Britain's debt—widened about 10 bps this week.
Deutsche Bank said in a note that investors should sell the pound on a broad trade-weighted basis and that there might be "further to go" in the recent pound weakness. "We like selling GBP against a basket of other major currencies," they said, mentioning the euro, dollar, Swiss franc and Japanese yen.
They also noted that higher volatility can reduce the benefit of higher yields for the pound. According to news agency Reuters, high yields can support a currency by making it more attractive for "carry trades," as currency traders seek to profit from the yield differentials between different markets.
However, these trades are much less attractive when volatility is high, as price swings can wipe out small yield differentials. Ten-year gilt yields are up 25 bps this week. If this trend continues, it will be the biggest weekly rise in a year.
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