Bonds spell bad news for Pound

By Luke Dyson

Now two weeks into the new year it is quite clear sterling is still struggling to make any gains against the other G10 currencies, with rates dropping three quarters of a percent over the course of last week against the Euro, and now at lows last seen back in September after the government’s mini budget was rejected causing a market free fall.

This was a see-saw effect from the UK’s bond yields falling in value but also the fact EUR investors are preparing for up and coming interest hikes.

Gilt yields tumbled, with the 10 year gilt now seeing -15 basis points from the previous week – now at one month lows of 3.4%.

UK two-year bonds have also fallen 8.23% since the beginning of January.

Bond yields typically react positively when interest rate hikes are on the horizon, however the Bank of England has indicated these rates have now nearly peaked, whilst on the other side of the coin the ECB is still looking to aggressively rate hike, resulting in the bond yields being driving down and sterling strength having to take the hit.

Although the market has dropped off the back of this news, the current rates are still potentially a good buying opportunity at present as these rates could continue to drop due to factors such as inflation and the energy crisis which is still ongoing and nowhere near under control as of yet. The rates may be lower at present in direct comparison to last year’s highs, however we are significantly in a better position now with sterling strength compared to last years lows.

Please get in touch with your currency consultant today to discuss a strategy to ensure you buy at the best rate possible given the current circumstances and limit your downside currency exposure.

Economical data for the week

Tomorrow

GBP – 07:00 Claimant count change

CAD – 13:30 Core CPI

Wednesday

GBP – 07:00 Core CPI

USD – 13:30 retail sales

Thursday

AUD – 00:30 Unemployment rate

Friday

CAD – 13:30 Retail sales