๐ Pound Sterling Under Pressure: Key Highlights and Market Insights
The Pound Sterling (GBP) faces intense selling pressure at the start of the week, as concerns over rising UK government borrowing costs and global inflation dynamics weigh heavily on the currency. Here's what you need to know:
๐ Key Market Drivers
๐ Soaring UK Gilt Yields:
30-year gilt yields climb to 5.47%, the highest since 1998, driven by rising borrowing costs and uncertainty around trade policies.
UK remains heavily reliant on foreign financing, making it one of the most vulnerable economies in the G10.
๐ก BoE Policy Outlook:
Upcoming UK Consumer Price Index (CPI) data for December (to be released Wednesday) will play a pivotal role in shaping the Bank of England's monetary policy.
Traders now expect a 44 bps rate reduction this year, down from 50 bps anticipated earlier.
๐ Pound Sterling Underperformance:
GBP/USD hits a fresh yearly low near 1.2100, as strong US Nonfarm Payrolls (NFP) data bolsters the US Dollar.
The US Dollar Index (DXY) rises to a 2-year high above 110.00, reflecting robust labor market data.
๐ก Key Analyst Insights
Deutsche Bank:
"The UKโs reliance on external financing increases its exposure to global volatility, making it one of the most fragile economies among G10 nations."
Macquarie:
"The Fed is likely to cut borrowing rates only once this year, with the rate bottoming between 4.00%-4.25%."
๐ Technical Analysis
Bearish Momentum:
The GBP/USD pair trades near 1.2120, with key support at 1.2050 (October 2023 low).
The 20-day EMA at 1.2450 acts as major resistance, confirming the bearish trend.
RSI at 26.70 signals oversold conditions, suggesting potential short-term recovery.
Market Focus:
Investors are eyeing US CPI data (Wednesday) and UK CPI data (Thursday) for signs of stubborn inflation, which could influence both BoE and Fed monetary policy.
โ ๏ธ Key Risks to Watch
๐ท UK Fiscal Policy:
Rising borrowing costs threaten the UK governmentโs plans for funding public spending solely through tax receipts.