The pound continued to fall against the dollar in early European trading on Friday, dipping 0.2% to $1.2289 — it’s lowest point since November 2023.
Sterling has been rattled by the sell-off in UK government bonds this week, as concerns that inflationary pressures will persist and that central banks will slow down their pace of interest rate cuts.
CCY – Delayed Quote • USD
1.2303 – (0.00%)
As of 9:50:08 GMT. Market open.
This has made government bonds — known as gilts in the UK — less appealing to investors and prompted heavy selling, which has pushed yields higher. Yields are effectively the interest rate on bonds which are paid out as a return to investors, meaning the cost of borrowing for the government has risen.
The 10-year gilt yield was trading at 4.82% on Friday morning, which is its highest point since 2008.
Jim Reid, market strategist at Deutsche Bank (DBK.DE), said: “There’s been some debate as to why the UK has found itself the centre of attention in global markets. But a key point is that its twin deficits are the second-largest in the G7, only behind the US, who have the benefit of the world’s reserve currency.”
Read more: FTSE 100 LIVE: London stocks lower as UK borrowing costs rise again
“So the UK is reliant on overseas investors, with around 30% of gilts held abroad,” he said. “On top of that, the combination of sluggish growth and above-target inflation are adding to investors’ nerves, and the current pattern of market moves (with yields up and sterling down) is reminiscent of previous episodes of turmoil.”
Reid said parallels had been drawn to the crisis in liability-driven investments in 2022 in the wake of former prime minister Liz Truss’s mini-budget and the sterling crisis of 1976, which culminated in a bailout by the International Monetary Fund (IMF).
“Nevertheless, the size of the moves are nowhere near the scale of what happened in 2022, when the 10 year gilt yield moved up by more than 100bps in the three sessions after the mini-budget took place,” he said.
The pound was also down against the euro (GBPEUR=X) on Friday morning, falling 0.1% to €1.1931.
CCY – Delayed Quote • USD
1.1939 – (-0.07%)
As of 9:50:22 GMT. Market open.
Gold prices continued to climb on Friday, as concerns over inflation and economic uncertainty, driving investors to look to the precious metal as a safe haven asset.
The spot price rose by 0.5% to $2,680.19 per ounce, while gold futures advanced 0.6% to $2,705.50 per ounce.
Gold is considered to offer a hedge against inflation, as the precious metal is typically priced in dollars. The gold price, therefore, tends to rise if inflation erodes the value of the dollar.
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The price of the precious metal in pounds hit a new record high for UK investors on Thursday, at £2,172 per troy ounce.
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Adrian Ash, director of research at BullionVault, said: “Gold rising together with government borrowing costs signals how uneasy the markets are becoming over the UK’s budget deficits and long-term debt.
“Between 2002 and 2022, gold priced in the pound went in the opposite direction to the yield offered by 30-year gilts almost two-thirds of the time on a three-month basis,” he said. “Since then — when inflation surged and financial sanctions against Russia for invading Ukraine led other central banks to buy gold as an escape from Western assets — they have moved together more than half the time. Across the past 52 weeks, that figure rises to nearly 70%.”
“Last time gold made extended gains like this against a backdrop of rising yields was the 1970s,” Ash added.
COMEX – Delayed Quote • USD
2,705.70 – (+0.55%)
As of 4:40:28 GMT-5. Market open.
Oil prices rose on Friday morning, as colder weather helped drive fuel demand.
Brent crude futures were up 1.5% to $78.07 per barrel, while US West Texas Intermediate (WTI) crude also gained 1.5% to trade at $75.03 per barrel.
Derren Nathan, head of equity research at Hargreaves Lansdown (HL.L), said: “Cold weather north of the equator is helping and continuing declines in US inventories are also supporting prices.
“On the supply side, a fall in Russian exports is also contributing to the strong pricing environment.”
Read more: What the UK government bond sell-off means for the economy and investors
However, Nathan added that there were also some opposing forces to the advance in oil prices.
“A strong dollar and weak outlook for the Chinese economy mean that prices for the rest of the year are harder to predict than ever,” he said.
In broader market movements, the FTSE 100 (^FTSE) was little changed on Wednesday morning, trading at 8,246.16 points. For more details check our live coverage here.
NY Mercantile – Delayed Quote • USD
78.43 – (+1.96%)
As of 4:40:39 GMT-5. Market open.
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