The pound has not been trading well recently. Long-term government bond yields have surged. The 30-year government bond yield has even reached a new high not seen since 1998! Francesco Pesole, a forex analyst at ING, has offered a few thoughts on this.
The Bank of England seems likely to cut interest rates before the end of the year
"Worth a look, the sell-off of long-term bonds is actually widespread across Europe. How is the performance of UK government bonds? It's about the same as other countries. Recently, the euro/pound has risen by 0.7%, indicating that the pound is quite sensitive to changes in yields. But we're not that worried. The pound probably won't continue to weaken due to fluctuations in the government bond market."
"The market is indeed watching the fiscal situation in the UK. The rise in long-term yields has attracted considerable attention. However, the increase is mainly related to inflation expectations and the market's reassessment of the Bank of England's policy stance. It's not entirely a fiscal issue. Interestingly, the demand for such ultra-long-term bonds as the 30-year ones in developed markets is generally low, but the 10-year UK government bond auction was unexpectedly popular, setting a subscription record of £14 billion. It doesn't seem like fiscal concerns are driving up yields; it looks more like inflation expectations and adjustments in central bank policy are at play."
"We are not optimistic about the outlook for the British pound. After all, we still believe that the Bank of England will cut interest rates before the end of this year. However, the volatility of long-term government bonds seems to be nothing special. This volatility is not enough to bring a sustained risk premium to the British pound. Especially since the UK government may introduce a fiscal consolidation plan. As it stands, the euro/pound exchange rate should remain below 0.870."
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Pound: It seems to be a bit sensitive to the government bond dumping - ING
The pound has not been trading well recently. Long-term government bond yields have surged. The 30-year government bond yield has even reached a new high not seen since 1998! Francesco Pesole, a forex analyst at ING, has offered a few thoughts on this.
The Bank of England seems likely to cut interest rates before the end of the year
"Worth a look, the sell-off of long-term bonds is actually widespread across Europe. How is the performance of UK government bonds? It's about the same as other countries. Recently, the euro/pound has risen by 0.7%, indicating that the pound is quite sensitive to changes in yields. But we're not that worried. The pound probably won't continue to weaken due to fluctuations in the government bond market."
"The market is indeed watching the fiscal situation in the UK. The rise in long-term yields has attracted considerable attention. However, the increase is mainly related to inflation expectations and the market's reassessment of the Bank of England's policy stance. It's not entirely a fiscal issue. Interestingly, the demand for such ultra-long-term bonds as the 30-year ones in developed markets is generally low, but the 10-year UK government bond auction was unexpectedly popular, setting a subscription record of £14 billion. It doesn't seem like fiscal concerns are driving up yields; it looks more like inflation expectations and adjustments in central bank policy are at play."
"We are not optimistic about the outlook for the British pound. After all, we still believe that the Bank of England will cut interest rates before the end of this year. However, the volatility of long-term government bonds seems to be nothing special. This volatility is not enough to bring a sustained risk premium to the British pound. Especially since the UK government may introduce a fiscal consolidation plan. As it stands, the euro/pound exchange rate should remain below 0.870."