Bond market rout sees pound plummet

In a dramatic day for the pound, a rise in bond prices saw confidence in sterling evaporate. GBP ended Tuesday down more than 1.1% on the dollar and nearly 0.6% on the euro. However, over the channel, a similarly stressed bonds market saw EUR fall more than 0.5% on the dollar.

With the UK government’s long-term borrowing costs hitting their highest level since 1998, traders are clearly losing confidence in Labour’s economic credibility and expect tax rises and spending cuts in the coming autumn budget.

Chancellor Rachel Reeves finds herself in a tricky spot, because with the cost of servicing UK debt rising, each year more of the government’s money is going to its lenders and not to the national services that need investment.

While the dollar did well yesterday, gaining 0.6% on the euro and more than 1.1% on the pound, this was a case of staying stable while all around it fell. The US stock markets weren’t immune to what was happening in Europe – both the Dow Jones and the S&P 500 were down more than 1%, as traders looked for less volatile assets.

Today sees the US’ Bureau of Labor Statistics publish its first jobs data since President Donald Trump fired its lead official for released statistics he didn’t like. It is impossible to predict how the market is going respond to the numbers, whether they claim to show growth or shrinkage in US employment.

Europe, too, saw a rising cost of long-term debt: France’s 30-year bond yields hit a 16-year high, the highest level since the 2011 debt crisis. This will put immense pressure on France’s Prime Minister, François Bayrou, who has called a confidence vote next week which may well see the collapse of his government.

In other news, EU inflation rose to 2.1% for the first time since April. This is unlikely to cause the European Central Bank to increase interest rates, but it shows that no successes are ever fixed when it comes to the economy.

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GBP: Pound drops as debt cost rises

The pound plunged in value against the dollar and euro on Tuesday, losing more than 1% on the former and 0.6% on the latter. The cost of servicing UK long-term debt hit its highest level since 1998, suggesting Rachel Reeves will have to raise taxes and cut spending in the coming autumn budget.

GBP/USD past year

EUR: Bond prices put pressure on French government

Although it didn’t fall as far as the pound, the euro was still down 0.6% on the dollar by the end of Tuesday’s trading. The increase in bond prices in the EU will put immense pressure on the French government’s confidence vote next week.

EUR/USD past year

USD: The US wasn’t unharmed by Europe’s bond rout

While the dollar held its value as the pound and euro struggled on Tuesday, ending the day 1.1% up on sterling and 0.6% on the euro, drops in the stock market show traders weren’t immune to what was happening over the Atlantic.

USD/GBP past year