Pound Sterling has lost ground by over 1% against the majority of currencies after it emerged yesterday that Government debt and borrowing costs have risen to their highest levels since 1998. This has seen bonds rise to similar levels of the infamous Lizz Truss budget and has sent markets tumbling. Usually, rising bond yields should correlate with a stronger Pound, however due to an underwhelming economic performance in The UK since the October budget, markets and investors alike are losing confidence as to how the government plan to service these debts. This now puts an added pressure on the Spring Budget, with Chancellor Rachel Reeves likely to now consider ways in which she can cut spending, implement further tax rises and potentially even break her own borrowing limits.
One of the main concerns in the market is the fact that these rising yields we’ve experienced over the past 24 hours mean the government must now devote more and more of its revenues to service these debts which in turn means there is no less finances available for areas of spending within the economy. Notably, Sterling-USD is now at its lowest range since November 2023 and GBP-EUR at its lowest since November of 2024.
Sticking with the US Dollar, we had the meeting minutes from their December meeting and the consensus showed widespread support for keeping rates higher for longer and therefore projecting fewer rate cuts in 2025. Fewer rate cuts mean borrowing costs for both consumers and businesses for products such as credit cards, cars and houses will remain elevated – but crucially will support a higher Dollar as we move closer to the inauguration of Donald Trump. Federal Reserve officials now just expect two rate cuts this year, down from the initial four projected just a few months back.
The rest of the week sees Euro November Retail Sales set to be released at the top of the hour which looks like it may provide a bit of breathing space with a swing of nearly 1% growth. We round the week off tomorrow with the eagerly anticipated Non-Farm release.
GBP/EUR 1.1914 GBP/USD 1.2289 GBP/AED 4.5162
GBP/AUD 1.9843 GBP/CHF 1.1200 GBP/CAD 1.7676
GBP/NZD 2.1970 EUR/USD 1.0304 GBP/ZAR 23.2025