Pound Sterling Sellers Jump on the Bandwagon, GBP/USD Nears 1.213

January 13, 2025 - Written by David Woodsmith

STORY LINK Pound Sterling Sellers Jump on the Bandwagon, GBP/USD Nears 1.213

The British Pound Sterling came under renewed pressure on Monday as sellers looked to trigger further pressure and position liquidation.

The Pound to Dollar (GBP/USD) exchange rate has slumped to fresh 14-month lows at 1.2110.

ING had expected GBP/USD support around 1.2250 but now expects that there will be a further slide to 1.20.

The dollar overall has posted further gains with fresh 2-year highs, which has hurt the Pound, but there has also been another bout of wider vulnerability.

The Pound to Euro (GBP/EUR) exchange rate, for example, has weakened to new 2-month lows at 1.1880.

Equity markets moved lower, which hampered the Pound, and overall risk conditions will also be a key element.

According to Danske Bank, “We remain cautiously optimistic that the move in UK space and GBP FX is overdone, and stay bearish on EUR/GBP, (GBP/EUR gains) but stress that if risk appetite continues to sour, the moves could continue.”

International bond markets have remained under pressure on Monday. The US 10-year yield is close to 4.80%, the highest level since 2023, and the UK 10-year yield is near 4.90%, close to 16-year highs.

MUFG commented, “The continued move higher in global bond yields will keep downward pressure on the pound in the near term.”

Globally, stronger-than-expected US jobs data put upward pressure on US yields, and there has been a further shift in expectations surrounding Federal Reserve policy.

Markets consider that the chances of a first-quarter rate cut have dipped to below 20% and the chances of no rate cut at all during 2025 have increased to over 30%.

Oil prices have also increased further, with benchmark Brent crude hitting a 5-month high.

Higher oil prices will put upward pressure on costs, while the Pound weakness will add upward pressure on UK fuel prices.

Domestically, the most important data release will be on Wednesday, with the latest inflation data.

Consensus forecasts are for the headline rate to remain at 2.6% for December, with the core rate edging lower to 3.4% from 3.5%.

Typically, higher-than-expected data tended to support the Pound, but this time could be different.

According to ING, higher-than-expected inflation would trigger fresh concerns within the bond market.

MUFG added, “in the current market environment where the ongoing sell-off in Gilts is creating more concern amongst market participations over the government fiscal positions, even a stronger UK inflation report could be viewed more negatively for the pound.”

In contrast, weaker-than-expected data would trigger fresh speculation over a more aggressive cut in interest rates by the Bank of England, which would hurt yields.

ING added, “In other words, sterling gets hit in both scenarios.”

There are also further concerns that higher yields will increase debt-servicing costs and force further government action to tighten policy.

ING commented, “In the background, the overriding view remains that the UK government will probably be forced to announce spending cuts on 26 March. This will feed into a tighter fiscal/looser monetary/weaker sterling narrative.”

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TAGS: Pound Dollar Forecasts