The British Pound extends the selloff

The British Pound is extending the selloff that started yesterday and remains a significant underperformer among the majors. There was no fundamental catalyst behind the selloff. It was a technical one.

Yesterday around noon, the UK 10Y yield made a new cycle high which increased the bearish momentum in the bond market. The British Pound started to fall alongside bond prices in a move that resembles the reaction to the UK “mini-budget” announcement on the 23rd of September 2022.

At that time, it was much more violent as inflation was still very high and the market didn’t like the announcement of the largest tax giveaways in the last forty years. This time, the bond market is starting to feel uneasy about the ongoing stagflation in UK as growth remains weak and core inflation sticky.

The thinking in the FX market could be that the rise in yields will put additional pressure on growth and the BoE might need to keep rates higher for longer and eventually cut more aggressively in a recession. The fact that the GBP was one of the best performers in 2024 and with positioning still net long doesn’t help either.

This article was written by Giuseppe Dellamotta at www.forexlive.com.