The pound fell 0.7% against the US dollar on Thursday to $1.2280 as growing concerns over the British fiscal outlook and persistent inflationary pressures weighed on the currency.
Despite a sharp rise in bond yields with the UK’s 30-year yield reaching its highest level since 1998 and 10-year yields hitting levels unseen since 2008, sterling struggled to gain traction.
This is against the general market conception that rising yields increase the attractiveness of a currency. However, the decline in the Pound indicates a broad-based uneasiness among investors and suggests potential capital flight.
“The pound could remain the preferred pressure valve for anxious investors who worry about the outlook of their UK portfolios,” said Valentin Marinov, head of Credit Agricole’s Group-of-10 FX strategy in London. “Markets are quite skittish at the moment. FX traders will continue to ‘milk’ the heightened FX volatility for whatever it’s worth.”
The market turmoil has drawn comparisons to the 2022 crisis under former Prime Minister Liz Truss, when the pound hit a record low and UK bond yields surged, pushing pension funds to the brink of collapse.
While regulatory safeguards have since been strengthened, fears of a deepening selloff persist.
Chancellor of the Exchequer Rachel Reeves faces mounting pressure as rising borrowing costs shrink her £9.9 billion fiscal headroom. Without amendments to fiscal plans, concerns over the sustainability of the UK’s economic policies may intensify further.
The pound’s decline reflects broader uncertainty, as inflationary pressures and fiscal challenges weigh heavily on investor sentiment, leaving UK assets vulnerable to continued volatility.
