Key Points
- GBP/USD falls 1.2% to $1.3422, weakest G10 performer against the dollar.
- UK 30-year gilt yields surge to 5.69%, a 27-year high, on rising fiscal anxiety.
Sterling slumped more than 1% on Tuesday, retreating to $1.3422, after a sharp selloff in UK government bonds pushed 30-year gilt yields to their highest level since 1998. The move highlighted renewed trader concerns about the UK’s fiscal sustainability and its ability to rein in debt.
The selloff in gilts aligned with a broader repricing across global bond markets, but the scale of sterling’s decline with its largest single-day fall since June has underlined Britain’s vulnerability.
Finance minister Rachel Reeves is expected to unveil tax increases in the autumn budget to stay aligned with fiscal targets, raising fears of slower growth.
Meanwhile, Prime Minister Keir Starmer reshuffled his cabinet this week to bolster his government ahead of what is expected to be a challenging end to the year.
Rabobank’s Jane Foley warned that while a repricing of Bank of England expectations had buoyed sterling last month, fiscal risks tied to the autumn budget will remain a drag in the months ahead.
The UK is not alone under scrutiny. France’s 30-year bond yields also surged to their highest in more than 16 years this week as Prime Minister François Bayrou sought to prevent a government collapse.
Technical Analysis
GBP/USD has had a strong run since February’s low near 1.2250, climbing steadily to reach a July high of 1.3788 before pulling back. The pair now trades around 1.3422, sitting above the key 1.3300 support zone.
Moving averages (5, 10, 30) are flattening out, reflecting the consolidation phase, while the MACD has cooled and is hovering around the zero line, showing reduced momentum compared to earlier in the year.
In the near term, resistance is at 1.3550–1.3600, with a break above opening the way back toward July’s peak at 1.3788. On the downside, support lies at 1.3300, with further risk down to 1.3100 if that level breaks.
For now, GBP/USD is range-bound, with direction likely to depend on incoming US inflation data, Federal Reserve guidance, and UK growth signals.
Cautious Forecast
If fiscal concerns deepen and gilt yields remain elevated, GBP/USD could test 1.3300 in the near term.
A break below this level risks extending losses toward 1.3100, though any signs of fiscal discipline in Reeves’ budget could help sterling stabilise back toward 1.3550.
