(Bloomberg) — UK assets slumped again on Monday as angst ahead of a key inflation report this week threatens to extend a selloff in the nation’s markets.
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Sterling was the worst-performing Group-of-10 currency on Monday, dropping as much as 0.8% to $1.2106, the lowest since November 2023. Gilts fell with global peers, pushing the 10-year yield back toward last week’s peak of 4.92% — the highest level since the global financial crisis in 2008.
The moves suggest UK assets will remain fragile at least until Wednesday, when December’s consumer price data is due. While bonds globally have performed poorly since earlier December, gilts emerged as a particularly weak link given concerns over persistently high inflation and the nation’s stretched public finances.
“In the current market environment where the ongoing selloff in gilts is creating more concern amongst market participations over the government fiscal positions, even a stronger UK inflation report could be viewed more negatively for the pound,” Lee Hardman, senior FX strategist at MUFG wrote in a note.
Economists surveyed by Bloomberg forecast Britain’s consumer price growth was unchanged at 2.6% last month, above the Bank of England’s 2% target. Signs that price pressures are reigniting could unleash further market volatility.
Options trading suggests the pound’s weakness will persist. One-month risk reversals, a measure of market sentiment, show traders are the most bearish since December 2022. Meanwhile, the cost of hedging sterling swings over the coming month rose to the highest since March 2023.
“The UK has suffered the most of the G-10 in 2025,” said Bob Savage, head of markets strategy and insights at BNY. “The UK data may set off one theme for others in 2025 – ‘new stagflation’ where fiscal and monetary policy aggravate growth leaving inflation stuck.”
Investors will also closely follow a sale of 30-year inflation-linked UK bonds on Tuesday and an offering of 10-year gilts on Wednesday. Last week, an auction of long-term debt was the least oversubscribed since 2023, while new five-year notes were met with solid demand.
Pound Traders Are Ready for Another 8% Slump After Selloff
The yield on 10-year gilts rose as much as six basis points on Monday, adding to a 25-basis-point jump last week. The market rout drew comparisons with a meltdown two years ago that toppled former prime minister Liz Truss, heaping pressure on the fiscal plans of current Chancellor Rachel Reeves.
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UK stocks were also hit in the selloff, with the domestically-focused FTSE 250 posting its worst week since June 2023. The index fell 0.2% on Monday, while the large-cap FTSE 100, mostly comprised of export-oriented constituents, dipped 0.3%.
–With assistance from Naomi Tajitsu and Vassilis Karamanis.
(Adds details on options trading, analyst comment from sixth paragraph. Updates prices throughout.)
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