Investing.com – The British pound continued its recent decline against the dollar and the euro on Monday, led by increased investor concerns about Britain's fiscal stability as gilt yields rose for the t -sixth day in a row.
Sterling depreciated as much as 0.7% against the dollar, reaching $1.2103, its lowest level since November 2023. It later settled down 0.6% at $1.2125. Against the euro, the pound was down 0.2% at 84.10 pence.
The pound has become a focus for global currency traders due to the impact of rising global bond yields, particularly from the United States, on British markets. This result is due to concerns about rising inflation and a reduced likelihood of rate cuts from the Federal Reserve.
Strong US labor market data released on Friday added fuel to global bond yields, prompting money markets to stop pricing in any rate cut from the Fed this year. While higher yields often strengthen the currency, analysts in Britain expect the government may have to cut spending or raise taxes to comply with its fiscal rules, which could affect grown in the future.
On Monday, Britain's 10-year gilt yield rose 4 basis points to 4.879%, slightly below last week's 2008 high of 4.925%. It had risen more than 24 basis points last week, marking its biggest weekly increase in a year. Bond yields and prices have an inverse relationship. Britain's 30-year yield hit a 27-year high on Monday, hitting 5.472%.
This week, attention is also likely to be based on British inflation data to be published on Wednesday, which could affect the Bank of England's monetary policy in the short term. Consumer prices are expected to increase 2.6% annually in December, in line with November's level, while core CPI is expected to have increased to 3.4% from 3.5%.
Futures markets are currently pricing in around 16 basis points for a discount at the February BoE meeting, which suggests a roughly 65% chance of a quarter-point rate cut.
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