The British pound fell 0.4% to €1.13 on Tuesday, marking its weakest performance against the euro since April 2023. Against the dollar, sterling declined 0.5% to $1.3086.
"GBP is under pressure," said Simon Phillips, managing director at No1 Currency, as markets brace for UK Chancellor Rachel Reeves' November 26 budget announcement.
Jordan Rochester at Mizuho Bank forecasts the pound could fall below $1.30. UK 30-year gilt yields climbed 4 basis points to 5.21%, the highest level since August peaks last seen in 1998. The surge in yields reflects investor concern over fiscal policy, with roughly 25% of UK government bonds tied to inflation compared to approximately 10% in the US and France.
The Bloomberg Dollar Spot Index gained 0.1% after sinking to its lowest point since 2022. Speculation around the appointment of a new Federal Reserve chair is driving the dollar's partial recovery, according to currency analysts.
Neil Wilson, analyst at Saxo Markets, warned of "fiscal instability risk" weighing on sterling. The currency's weakness comes as a recent UK inflation-linked bond auction drew £69 billion in bids for £4.25 billion of debt, surpassing March's record of £67.5 billion.
Broader currency volatility stems from shifting carry trade dynamics affecting the Japanese yen and Turkish lira. Progress on Iran-US nuclear negotiations is pressuring oil-linked currencies as crude prices fluctuate. WTI crude traded around $61 per barrel Tuesday, up 1.5%, while Brent crude held above $65.
Kathleen Brooks, research director at XTB, noted the climb in gilt yields signals market unease. Mike Riddell, portfolio manager at Fidelity Strategic Bond Fund, countered that gilts remain "top performers globally over the last few days and months."
The pound's multi-year low against the euro compounds pressure on UK assets. The FTSE 100 closed at a record 9,911, up 0.1%, while the FTSE 250 rose 0.3%. European markets outperformed, with the Stoxx 600 reaching a record 583.4 points.
Currency traders are positioning for continued GBP weakness as the November budget approaches, with expectations of additional tax increases to address what Reeves has termed a "black hole in public finances."