Pound at lowest level in over a year against dollar, concerns over UK debt

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The pound sank on Thursday, weighed down by concerns over the British government's ability to control debt public as well as on the country's economy, and by Donald Trump's threats to increase customs duties. 

At around 10:40 GMT (11:40 in Paris), the pound fell by 0.81% against the greenback, to $1.2263, after having fallen earlier to its lowest level since November 2023, at $1.2239. 

The pound lost 0.65% against the European currency, to 84.01 pence to the euro. 

“The weakness of the pound reflects a greater unease among investors” in the face of the situation “on the market for +gilts+”, British Treasury bonds, underlines Lee Hardman, analyst at MUFG. 

On Thursday, the borrowing rate for British bonds at 30-year yields have reached their highest level since July 1998, while UK 10-year government bond yields are at their highest level since July 2008. 

As a general rule, rising bond yields tend to support a currency, attracting investors. 

That’s not the case here, as rising UK borrowing costs “suggest a lack of confidence in the ability” of the Labour government “to fuel economic growth” and bring the country’s debt under control, summarises Kathleen Brooks of XTB. 

Labour has struggled to convince the British business community since returning to power in July 2024. 

This “raises comparisons” with the collapse of the pound and the surge in government borrowing rates that followed former Prime Minister Liz Truss’s massive, unfunded spending announcements in September 2022, notes Mr Hardman of MUFG. 

The British currency is also falling “against a stronger dollar,” said Ipek Ozkardeskaya, an analyst at Swissquote Bank, amid “fears that Donald Trump's presidency will boost inflation in the United States,” and delay the Federal Reserve's interest rate easing. 

On Wednesday, CNN reported that the president-elect, who is scheduled to be inaugurated on January 20, would consider declaring a national economic emergency, which would provide him with the legal framework to quickly implement tariffs on goods entering the United States. 

In a report from their last meeting on December 17 and 18, published on Wednesday, several officials at the American central bank also expressed concern that prices would calm down less quickly than expected, distancing themselves from the possibility of a national economic emergency. the prospect of a new rate cut in January. 

 

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