Pound falls below $1.23 to 14-month low
Sterling fell to a 14-month low in early London trading as a slide in the bond market heightened concerns about British assets.
The pound fell by 1 cent against the US dollar, extending recent losses to around $1.226.
This is the lowest level since November 2023 and suggests that this week's rise in UK borrowing costs continues to worry markets, even as the dollar generally strengthens.
michael brown Senior research strategist at a securities company pepper stonewarned that “things are getting pretty ugly” in the UK as well.
brown I said this to a client this morning.
This movement of rising yields as the respective currencies depreciate is a classic sign of fiscal disenhancement and participants' loss of confidence in the ability of the government in question to control the fiscal context.
We are not yet at the Truss/Kwarteng stage, but the situation is clearly very precarious.
brown He added that he likes to “short the pound,” or bet that the currency will continue to fall.
Despite recent losses, the pound is still comfortably above its post-2022 mini-budget record low, when it fell to near parity against the US dollar.
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The chancellor, who is travelling with a delegation of City bigwigs, is holding the visit as part of a concerted effort to build bridges with China, as part of the government’s push for growth.
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Our economics editor Heather Stewart explains:
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City businesses have urged Reeves to help ensure China is not placed on the higher, more stringent, tier of a new “foreign influence registration scheme” – a decision ultimately to be made by the Home Office.
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Lobbyists for overseas governments will have to declare their role under this new regime, but the “enhanced” tier will force companies carrying out any activity on behalf of another state to make themselves known – something business groups fear could prevent closer ties.
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The chancellor will take the Bank of England governor, Andrew Bailey, with her on the visit to Beijing and Shanghai, as well as the FCA chief executive, Nikhil Rathi, and a string of senior banking figures, including HSBC’s chair, Mark Tucker.
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Reeves will meet China’s vice-premier, He Lifeng, in Beijing before flying to Shanghai for discussions with UK firms operating in China.
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Enhanced cooperation on financial services is at the heart of the Treasury’s hopes for the trip. Reeves lavished praise on the sector in her Mansion House speech last year, calling it the “crown jewel” of the UK economy.
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The pound has dropped to a 14-month low in early trading in London, as the bond-market sell-off fuels anxiety over UK assets.
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Sterling has lost a cent against the US dollar, extending its recent losses, falling to around $1.226.
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That’s its lowest level since November 2023, suggesting that the jump in UK borrowing costs this week is continuing to worry the markets, at a time when the dollar is generally strengthening.
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Michael Brown, senior research strategist at brokerage Pepperstone, has warned that “things are also getting rather ugly” in the UK.
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Brown told clients this morning:
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This dynamic, of yields moving higher, as the respective currency falls, is a classic sign of fiscal de-anchoring taking place, and of participants losing confidence in the Government in question’s ability to exert control over the fiscal backdrop.
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We’re not at the Truss/Kwarteng stage just yet, but things are clearly on very shaky ground indeed.
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Brown added that his preference is to be ‘short GBP’ – ie, betting that the currency will continue to fall.
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Despite recent losses, the pound is still comfortably above the record low hit after the 2022 mini-budget, when it plunged to near-parity against the US dollar.
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showing Pound vs. USD for the past 5 years”,”caption”:”Chart showing Pound vs. USD for the past 5 years”, “credit”:”Photo: LSEG “}}],”attributes”:{“pinned”:true,”keyEvent”:true,”summary”:false},”blockCreatedOn”:1736408450000,”blockCreatedOnDisplay”:”02.40 EST”,”blockLastUpdated”:1736408762000,”blockLastUpdatedDisplay”: “02.46 EST”,”blockFirstPublished”:1736408516000,”blockFirstPublishedDisplay”:”02.41 EST”,”blockFirstPublishedDisplayNoTimezone”:”02.41″,”title”:”Pound falls below $1.23 to 14-month low”,”contributors”:[],”primaryDateLine”:”Thursday, January 9, 2025 02:53 EST”,”SecondaryDateLine”:”First published on Thursday, January 9, 2025 02:40 EST”},{“id”:”677f6fd58f087292f9af7e6b “,”elements”:[{“_type”:”model.dotcomrendering.pageElements.TextBlockElement”,”html”:”
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
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After two days of sharp rises in UK borrowing, City experts are harking back to previous episodes of financial panic – including the dark days after Liz Truss’s mini-budget of 2022.
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Britain finds itself in the eye of a global bond market storm at the moment, with the pound also weakening. Yesterday, the yield (rate of return) on 10-year UK government debt hit its highest since the 2008 financial crisis, a day after the 30-year bond yield hit its highest level since 1998.
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Last night, Rachel Reeves insisted she had an ‘iron grip’ on the nation’s finances, with a Treasury spokesperson declaring:
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“No one should be under any doubt that meeting the fiscal rules is non-negotiable and the Government will have an iron grip on the public finances.
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“UK debt is the second lowest in the G7 and only the OBR’s forecast can accurately predict how much headroom the government has – anything else is pure speculation.
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“Kick-starting economic growth is the number one mission of this Government as we deliver on our Plan for Change. Over the coming weeks and months, the Chancellor will leave no stone unturned in her determination to deliver economic growth and fight for working people.”
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It’s not exactly ‘pure speculation’, though, to point out that rising bond yields eat into the relatively small headroom available to the chancellor to hit her fiscal rules (to not borrow to fund day-to-day spending, and to show debt falling in five year’s time).
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If the headroom has vanished by the spring statement in March, it will leave the chancellor with an unpalatable choice – cut government spending, despite demands from the public and cabinet colleagues for better services, or raise taxes further.
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The borrowing costs of other governments have also been rising in recent sessions, inculding the US, where there are fears that Donald Trump’s presidency will drive up inflation, making interest rate cuts less likely.
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But the situation in the UK feels more acute.
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Ipek Ozkardeskaya, senior analyst at Swissquote Bank, says “the UK’s demons are back”, driven by heightened fiscal concerns – which are “evoking memories of Liz Truss’s chaotic ‘mini-budget days.’”
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Ozkardeskaya added:
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Back then, markets lost confidence in the government’s spending plans, triggering an aggressive selloff that forced the BoE to intervene. The fallout toppled Truss’s government, setting the stage for Labour’s strong electoral win.
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But now, the newly elected Labour government, which promised to rescue the country, improve finances, and boost growth, faces its own reckoning. To deliver on its ambitions, it needs market support – a resource proving elusive. Without it, borrowing costs will spiral higher, forcing tougher choices: more taxes, less spending, and weaker growth. And none of that bodes well for the pound.
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The sell-off in 2022, after chancellor Kwasi Kwarteng delivered a budget of unfunded tax cuts, was certainly more aggressive than what we’ve seen this week. But long-term borrowing costs are now higher than in the Truss panic.
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— Jim Bianco (@biancoresearch) January 8, 2025
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Kyle Rodda, senior financial market analyst at Capital.com, fears the tumble in UK asset prices could be a sign of another “simmering financial crisis”:
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There’s a mini-crisis brewing in UK markets amidst a broad-based sell-off in the country’s assets. For no explicable reason aside from already known factors like weak growth, elevated inflation, and unsustainable fiscal settings, stocks, bonds and the Pound plunged, in moves reminiscent of the 2022 Truss meltdown.
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The moves indicate a looming crisis of confidence in the UK and reflects expectations of ongoing and long-term economic malaise which will only be addressed by massive reform.
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Dutch bank ING say that several factors are pushing up UK bond yields, including Labour’s spending ambitions, sticky inflation, higher US rates and supply pressures.
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But in cheering news for the Treasury, IN’s senior european rates strategist Michiel Tukker is confident that we’re not facing a “sovereign crisis”.
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Tukker told clients:
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It’s important to note that the demand from foreign buyers remains strong, which reduces the repeat risks of a Liz Truss moment. So whilst rates can stay higher, we don’t expect any steep sell-offs on the back of sovereign risk.
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Also, keep in mind that the Truss turmoil was exaggerated by a liquidity crunch among pension funds due to interest rate hedges suddenly moving against them. This time the move up is more gradual, which should prevent such a spiral higher in gilt yields.
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The agenda
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10am GMT: Eurozone retail sales for November
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12.30pm GMT: Challenger survey of US job cuts in December
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4pm GMT: Bank of England policymaker Sarah Breeden gives speech
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main events
Rachel Reeves heads to China this week to build a bridge
The fall in the pound comes as Rachel Reeves prepares to fly to China to forge closer ties with the Chinese government.
The prime minister, who is on a visit with a delegation of city leaders, is holding the trip as part of a joint effort to build bridges with China as part of the government's drive to promote growth.
our economics editor heather stewart Let me explain:
Businesses in the city are asking Mr Reeves to help ensure China is not placed on the stricter tier of the new Foreign Influences Register, but the final decision will be made by the Home Office. .
Lobbyists for foreign governments will have to declare their role under the new system, but in the “enhanced” phase, companies doing any activity on behalf of other countries will have to identify themselves. , business groups fear this could prevent closer ties.
The prime minister will be accompanied by a range of banking executives on his visits to Beijing and Shanghai, including Bank of England governor Andrew Bailey, FCA chief executive Nikhil Rati and HSBC chairman Mark Tucker.
Mr Reeves will meet Chinese Vice Premier He Lifeng in Beijing before flying to Shanghai to hold talks with British companies operating in China.
Strengthening cooperation in the field of financial services is central to the Ministry of Finance's expectations this time. Mr Reeves lavished praise on the sector in a speech at Mansion House last year, calling it the “crown jewel” of the UK economy.
Pound falls below $1.23 to 14-month low
Sterling fell to a 14-month low in early London trading as a slide in the bond market heightened concerns about British assets.
The pound fell by 1 cent against the US dollar, extending recent losses to around $1.226.
This is the lowest level since November 2023 and suggests that this week's rise in UK borrowing costs continues to worry markets, even as the dollar generally strengthens.
michael brown Senior research strategist at a securities company pepper stonewarned that “things are getting pretty ugly” in the UK as well.
brown I said this to a client this morning.
This movement of rising yields as respective currencies depreciate is a typical sign of fiscal unfixing and participants losing confidence in the ability of the relevant government to control its fiscal background. It is.
We are not yet at the Truss/Kwarteng stage, but the situation is clearly very precarious.
brown He added that he likes to “short the pound,” or bet that the currency will continue to fall.
Despite recent losses, the pound is still comfortably above its post-2022 mini-budget record low, when it fell to near parity against the US dollar.
Introduction: Plunge in UK government bonds raises fears of a new truss moment
good morning. Welcome to our regular coverage of business, financial markets and the global economy.
With UK borrowing soaring in two days, City experts are recalling past episodes of financial panic, including the dark days after Liz Truss' 2022 mini-Budget.
The UK is currently in the midst of a global bond market storm, with the pound also falling. Yesterday, a day after the 30-year bond yield hit its highest level since 1998, the UK 10-year government bond yield (rate of return) hit its highest since the 2008 financial crisis.
last night, rachel reeves She claimed to have an “iron grip” on the national finances, with a Treasury spokesperson declaring:
“Adherence to fiscal rules is non-negotiable and no one should doubt the government's iron grip on public finances.
“The UK has the second lowest debt in the G7 and only the OBR’s forecasts can accurately predict how much space the government can afford, anything else is just guesswork.
“Accelerating economic growth is the number one mission of this government as we deliver our transformation plan. In the coming weeks and months, I will make every effort to demonstrate our commitment to delivering economic growth and fighting for workers. We will take measures.”
But it points out that rising bond yields are eroding the relatively small headroom available to the chancellor to achieve fiscal rules (not borrowing money for day-to-day spending and showing a reduction in debt). It's not exactly “pure speculation.” 5 years later).
If there is no more leeway in time for the spring statement in March, the prime minister will have to either cut government spending or raise taxes further, despite demands from the public and ministers to improve services.
Borrowing costs for other governments, including the U.S., have also risen in recent sessions, raising concerns that President Donald Trump's inauguration will accelerate inflation and make interest rate cuts less likely.
However, I feel that the situation in the UK is more serious.
Ipek OzkardeskayaSenior Analyst swiss quotes banksaid that rising fiscal concerns were “bringing back memories of the British devil” and “evoking memories of Liz Truss' chaotic 'mini-budget era'”.
Ozkardeskaya Added:
At the time, markets lost confidence in the government's spending plans, leading to aggressive selling and forcing the Bank of England to intervene. In the aftermath, the Truss government collapsed, setting the stage for Labor's landslide electoral victory.
But now the newly elected Labor government, which promised to save the country, improve public finances and boost growth, faces its own responsibilities. Realizing its ambitions requires market support, a resource that is proving difficult to obtain. Without it, borrowing costs would spiral upwards, forcing us to make tougher choices such as raising taxes, cutting spending, and slowing growth. And none of that bodes well for Pound.
The decline in 2022 after Prime Minister Kwasi Kwarteng tabled an unfunded tax cut budget was certainly more aggressive than what we saw this week. However, long-term borrowing costs are now higher than during the truss panic.
— Jim Bianco (@biancoresearch) January 8, 2025
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Kyle Rodda Senior Financial Market Analyst capital.com, They fear the fall in UK asset prices is a sign of a new “smoldering financial crisis”.
A mini-crisis is brewing in the UK market as British assets fall broadly. For no explainable reason other than known factors such as slowing growth, high inflation and unsustainable fiscal settings, stocks, bonds and the pound have fallen sharply, in a move reminiscent of the 2022 meltdown.
The move signals an impending crisis of confidence in the UK and reflects expectations of continued, long-term economic weakness that can only be addressed by major reforms.
dutch bank ING It said several factors were pushing up UK bond yields, including Labor's spending appetite, persistent inflation, rising US interest rates and supply pressures.
However, the good news for the Ministry of Finance is that Mr. IN European Senior Interest Rate Strategist michael tucker I am convinced that we are not facing a “sovereignty crisis.”
tucker I told my client:
It is important to note that demand from foreign buyers remains strong, reducing the risk of a repeat of the Liz Truss moment. Therefore, although interest rates may remain high, a sharp decline is not expected due to sovereign risk.
Note also that the truss disruption was exaggerated by the liquidity squeeze among pension funds as interest rate hedges suddenly moved against them. This time the rally is more gradual, which should avoid an upward spiral in gold output.
agenda
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10am GMT: Eurozone retail sales for November
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12:30pm GMT: Challenger survey on US job cuts in December
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4pm GMT: Bank of England policy chief Sarah Breeden speaks.
