- Pound (GBP) is falling sharply after modest gains yesterday
- 30-year UK gilt yields rose to an almost 30-year high
- Euro (EUR) is rising but falls against the USD
- French and German bond yields jump
The Pound-Euro (GBP/EUR) exchange rate is falling after modest gains yesterday. The pair rose 0.1% in the previous session, settling on Monday at €1.1567. It traded between €1.1530 and €1.1580. At 17:30 UTC on Monday, GBP/EUR trades -0.60% at €1.1497.
The pound is falling amid rising concerns over the fiscal position of the UK. UK long-term borrowing costs reached the highest level in almost 3 decades on Tuesday amid a global move higher in bond yields and specific concerns affecting the UK gilt market.
The yield on the 30-year government bond rose to 5.7% its highest level since 1998. Meanwhile, the shorter dated yields also ticked higher with the two-year and 10-year up by 4 and 7 basis points, respectively.
The rise in gilt yields coincided with a sharp drop in the pound against both the euro and the US dollar. The move comes as investors assess the Labour government’s reshuffle of senior advisory roles in preparation for the widely anticipated autumn budget, where Rachel Reeves will find herself in a vulnerable fiscal position.
The euro was rising against the pound but falling against the US dollar. The 30-year German, French, and Dutch bond yields moved to levels last seen in 2011.
French OAT (treasury) yields rose sharply last week amid concerns over the French budget and a vote of no confidence on Monday, 8th September, where the minority government is expected to collapse. This has since translated across to the German bond market, where yields have also risen sharply.
Separately, data showed that the eurozone inflation was 2.1% in August, remaining close to the ECB’s 2% target, where inflation was in June and July. The data support the view that the ECB will leave interest rates unchanged in the meeting on September 11 and could dampen talks around a December rate cut.