Published by Global Banking & Finance Review®
Posted on January 25, 2025
4 min readLast updated: January 27, 2026
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Sterling hits a 14-month low due to US jobs data, causing gilt yields to rise. This impacts UK markets and puts pressure on fiscal policies.
By Greta Rosen Fondahn
(Reuters) -British assets remained under pressure on Friday from high global borrowing costs, with sterling falling for the fourth day in a row and better-than-expected U.S. jobs data intensifying the move, while gilt yields rose for a fifth consecutive day.
After recording a moderate decline earlier in the day, the pound continued its slide and gilt yields jumped after U.S. government data showed employers added far more jobs than expected in December.
The pound was down 0.53%, after briefly touching $1.2194, its lowest since November 2023.
Benchmark 10-year gilt yields were up three basis points (bps) on the day to 4.84%, down from the session high of 4.889% after the data. Yields remained below Thursday's high of 4.925%, their highest since 2008.
British 30-year gilt yields rose as much as 6.8 bps on the day to 5.447% - their highest since July 1998. They were last up 3 bps at 5.411%.
The UK has been among the markets hardest hit by a surge in global borrowing costs, which most analysts say originated in the U.S. due to concerns about rising inflation, reduced chances of a drop in interest rates, and uncertainty over how U.S. President-elect Donald Trump will conduct foreign or economic policy.
That has sent benchmark U.S. 10-year Treasury yields soaring to their highest since November 2023, propped up the dollar and sent ripples through other currencies and stocks.
Traders on Friday bet the U.S. Federal Reserve will wait until at least June to reduce its policy rate.
But British markets have been among the most impacted, with sterling having lost 1.5% on the week, gilts underperforming peers and domestically focused stocks also struggling.
PRESSURE ON FINANCE MINISTER
While higher yields can sometimes support a currency, they are not doing so in this case, in part because they are putting pressure on finance minister Rachel Reeves, potentially forcing her to cut future spending.
"There remains clear concern over the likelihood that all of the Chancellor's fiscal headroom has now been eaten up by the sell-off in gilts, and the anaemic nature of UK economic growth," said Pepperstone strategist Michael Brown, referring to Reeves.
Traders are paying more to hedge against big swings in the pound than at any time since the March 2023 banking crisis.
One-month options volatility, a measure of demand for protection, hit a high of 10.9% on Thursday.
By Friday, this had retreated to 9.67%.
The pound has also lost about 1% against the euro this week.
Euro zone bond yields have also risen, but the yield gap between British 10-year gilts and German 10-year bonds – a gauge of the premium investors demand to hold Britain's debt – widened about 10 bps this week.
Deutsche Bank said in a note earlier on Friday that investors should sell the pound on a broad trade-weighted basis, and that there might be "further to go" in the recent pound weakness.
"We like selling GBP against a basket of other major currencies," they said, mentioning the euro, dollar, Swiss franc and Japanese yen.
They also noted that higher volatility can reduce the benefit for the pound of higher yields.
One reason why high yields can support a currency is because they make it more attractive for "carry trades" in which currency traders seek to profit from the yield differentials between different markets.
These trades are much less attractive when volatility is high, however, as small yield differentials can be wiped out by price swings.
Ten-year gilt yields are up 25 bps on the week. If sustained, it would be their biggest weekly rise in a year.
(Reporting by Greta Rosen Fondahn, additional reporting by Amanda Cooper and David Milliken; Editing by Toby Chopra, Timothy Heritage and Hugh Lawson)
The article discusses the decline of sterling to a 14-month low and the rise in gilt yields following US jobs data.
UK markets are affected by high global borrowing costs and the impact of US economic data on currency and bond yields.
High volatility reduces the attractiveness of carry trades, as small yield differentials can be negated by price swings.
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