After British long-term borrowing costs reached a 27-year high on 2 September and various other countries’ yields were volatile, bond markets seemed to have calmed down from 3 September, and the pound moved back up somewhat against major currencies. This article summarises recent developments affecting the sterling and briefly looks at the charts for GBPUSD and GBPJPY.
Long-term bonds from most major economies sold off in the first half of the week beginning 1 September as participants zoomed in on governments’ budgets and rising levels of debt. This was particularly acute in Britain, where the government was already under pressure to raise taxes, cut spending or possibly both to meet fiscal rules. However, the selloff mostly affected long-term bonds, with yields from benchmark decade gilts not reaching new highs:
While the yield from 30-year gilts reached 5.7% on 2 September, the highest since 1998, shorter-term bonds like the 10-year didn’t see such a spike. The peak for the decade’s yield was 4.82%, somewhat below the latest high in January around 4.9%.
Public debate and general concern over the British government’s ability and willingness to stick to fiscal rules have been active to some degree since Labour came to power last year. Now it might continue to intensify as the Chancellor’s autumn statement approaches. Rising national insurance and utilities present challenges to growth, so speculation and volatility might increase in the runup to the budget.
Meanwhile, the Bank of England’s Governor Andrew Bailey recently expressed doubt to the Treasury Select Committee about when rates can be cut again. At the moment, another cut seems unlikely this year, with the next one fully priced in for April 2026.
As the selloff in bond markets calmed on 3 and 4 September, cable recovered somewhat. Apart from bonds, monetary policy remains in view, with the Fed expected to cut twice before the end of the year while the BoE probably won’t cut again until the second quarter of 2026. JOLTs on 3 September was negative, putting some pressure on the dollar and raising the likelihood of another weaker NFP on 5 September.
$1.335 seems like a possible area of support given that the price failed to break through there on 2 and 3 September, although volume wasn’t particularly high. There’s some evidence that the uptrend starting in January has ended since there have been three lower highs since the end of June. $1.36 looks like an obvious resistance but another attempt to break through there would first need to tackle $1.35 and the 100 SMA. What happens next seems to depend mainly on the results of the NFP.