The GBP/USD pair remained under pressure for the fourth consecutive day, trading around 1.2300 during the Asian session on Friday. The British Pound (GBP) dropped to 1.2238 on Thursday, its lowest level since November 2023, as investor sentiment soured due to growing concerns about the United Kingdom’s fiscal stability and inflationary outlook.
UK Fiscal Concerns Weigh on the Pound
Despite a notable surge in UK long-term bond yields, with the 30-year yield reaching its highest level since 1998 and the 10-year yield hitting levels unseen since 2008, the Pound failed to gain traction. Normally, higher yields signal strength for a currency, but in this instance, the increase reflects concerns over persistent inflation and fiscal instability, prompting capital outflows.
On Thursday, UK Chief Secretary to the Treasury Darren Jones reassured markets that UK financial markets were functioning in an “orderly way.” However, his comments were met with further selling of the Pound and growing expectations of additional interest rate cuts by the Bank of England (BoE) later this year.
US Dollar Gains Amid Fed‘s Hawkish Tone
The GBP/USD pair also faced downward pressure from a stronger US Dollar (USD), bolstered by the Federal Open Market Committee’s (FOMC) hawkish stance and uncertainties surrounding the incoming US administration’s tariff plans. The US Dollar Index (DXY), which tracks the USD against six major currencies, remains firmly above the 109.00 mark.
Minutes from the latest FOMC meeting highlighted that policymakers expect inflation to remain elevated for longer than previously anticipated. They also acknowledged potential disruptions from trade and immigration policy changes under the incoming Trump administration. These factors contributed to the USD’s strength, further weighing on the Pound.
Outlook for GBP/USD
The GBP/USD pair remains vulnerable to further declines as concerns about the UK’s fiscal health persist, and market expectations of rate cuts from the Bank of England continue to grow. Meanwhile, the US Dollar’s strength, supported by hawkish Fed rhetoric, suggests that the downside risks for GBP/USD remain in play. Investors will be closely monitoring any updates on UK fiscal policies and US economic data for further direction.
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