The British pound fell to $1.22566, its lowest since November 2023, as concerns over Britain's fiscal and inflation outlook weighed on investor sentiment. The decline came despite a surge in UK bond yields, with the 30-year yield at its highest since 1998 and the 10-year yield at a level not seen since 2008.
Higher yields typically boost currencies, but the drop suggests capital flight is being driven by persistent inflation concerns and fiscal instability. Rising borrowing costs are also weighing on Chancellor Rachel Reeves, whose fiscal flexibility is shrinking.
In October, Reeves announced a budget that included £142 billion of borrowing and a £74 billion increase in annual spending, raising concerns about fiscal sustainability. Inflation concerns have also persisted, with CPI, wage growth and inflation expectations rising. Traders now expect just two Bank of England rate cuts this year, down from more than three predicted a month ago.(AL)
Source: Trading Economics
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