- GBP/USD continues to fall as concerns grow over the UK’s fiscal and inflation outlook.
- The British pound failed to find support, even amid a rise in UK long-term bond yields.
- US nonfarm payrolls are expected to decline to 160,000 in December, from 227,000 previously.
GBP/USD remains subdued for the fourth consecutive day, trading around 1.2300 during the Asian session on Friday. The GBP/USD pair fell to 1.2238 on Thursday, marking its lowest level since November 2023, as the British Pound (GBP) struggled under growing concerns over the UK’s fiscal and inflation outlook, weighing heavily on the investor sentiment.
Despite a rise in UK long-term bond yields—with the 30-year yield reaching its highest level since 1998 and the 10-year yield reaching levels not seen since 2008—the British pound failed to find medium. Normally, higher yields strengthen a currency, but in this case, the decline reflects capital flight driven by fears of persistent inflation and fiscal instability.
On Thursday, UK Treasury Chief Secretary Darren Jones stated that UK financial markets continue to function in an “orderly” manner. However, markets reacted by selling sterling higher and raising expectations of further rate cuts by the Bank of England (BoE) later this year.
Additionally, downside risks to the GBP/USD pair increased as the US Dollar (USD) gained support from the hawkish Federal Open Market Committee (FOMC) meeting minutes and uncertainties around the tariff plans proposed by the incoming Trump administration. The US Dollar Index (DXY), which tracks the performance of the USD against six major currencies, is stable above 109.00 at the time of writing.
The latest FOMC meeting minutes indicated that policymakers agree that the process could take longer than previously anticipated due to recent higher-than-expected inflation readings and the effects of potential changes on trade and immigration policy under President-elect Trump’s administration.
British Pound FAQs
The British Pound (GBP) is the oldest currency in the world (AD 886) and the official currency of the United Kingdom. It is the fourth most traded foreign exchange (FX) unit in the world, accounting for 12% of all transactions, averaging $630 billion a day, according to 2022 data. Its key trading pairs are GBP/ USD, which represents 11% of FX, GBP/JPY (3%) and EUR/GBP (2%). The British Pound is issued by the Bank of England (BoE).
The most important factor influencing the value of the Pound Sterling is the monetary policy decided by the Bank of England. The Bank of England bases its decisions on whether it has achieved its main objective of “price stability” – a constant inflation rate of around 2%. Its main tool to achieve this is the adjustment of interest rates. When inflation is too high, the Bank of England will try to control it by raising interest rates, making it more expensive for people and businesses to access credit. This is generally positive for sterling, as higher interest rates make the UK a more attractive place for global investors to invest their money. When inflation falls too much it is a sign that economic growth is slowing. In this scenario, the Bank of England will consider lowering interest rates to make credit cheaper, so that companies will take on more debt to invest in projects that generate growth.
The data released measures the health of the economy and may affect the value of the pound. Indicators such as GDP, manufacturing and services PMIs and employment can influence the direction of the Pound.
Another important data that is published and affects the British Pound is the trade balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports during a given period. If a country produces highly in-demand export products, its currency will benefit exclusively from the additional demand created by foreign buyers seeking to purchase those goods. Therefore, a positive net trade balance strengthens a currency and vice versa in the case of a negative balance.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
