Sterling plunges for fourth day as bond yields surge

Sterling continued its slide on Friday, its fourth day of falls, as elevated global bond yields kept the currency under pressure.

The pound was down 0.17 per cent against the dollar at $1.2286 , hovering close to Thursday’s 14-month low of $1.2239.

Global borrowing costs have soared amid concerns about rising inflation, reduced chances of a drop in interest rates, and uncertainty over how US President-elect Donald Trump will conduct foreign or economic policy.

This has propped up the dollar while sending ripples through other currencies and stocks.

Among the worst hit has been the UK market, with sterling having lost 1.9 per cent since Tuesday.

The yield on British government bonds, or gilts, soared this week, driving the government’s borrowing costs to their highest in over 16 years.

This is putting pressure on finance minister Rachel Reeves, potentially forcing her to cut future spending.

Benchmark 10-year gilt yields edged up in early trading on Friday to around 4.84 per cent, but remained below Thursday’s high of 4.925 per cent, their highest since 2008.

But sterling continued to slide, as investor concern mounted about the country’s finances.

“There remains clear concern over the likelihood that all of the Chancellor’s fiscal headroom has now been eaten up by the sell-off in gilts, and the anaemic nature of UK economic growth,” said Michael Brown, strategist at Pepperstone.

Traders are paying more to hedge against big swings in the pound than at any time since the March 2023 banking crisis.

One-month options volatility, a measure of demand for protection, hit a high of 10.9 per cent on Thursday .

By Friday morning, this had retreated marginally to 10.08 per cent.

Investors are now looking ahead to key US jobs data published later in the session, to confirm their view that US rates could stay higher for longer, which could cement the dollar’s rally further.