Pound (GBPUSD=X)

The pound has tumbled to its lowest level since November 2023, reflecting growing concerns over the UK's public finances.

Sterling dropped more than 0.5%, falling to $1.2128 against the dollar, its weakest point in 14 months. Traders are betting that the value of the pound will fall by as much as 8%.

The euro is at its weakest since November 2022 at $1.0275.

Jamie Niven, a fund manager at Candriam, said that the outlook for the pound appeared bleak, saying that “the path of least resistance” would likely be further decline. He pointed to “very limited pricing in of Bank of England cuts,” alongside the ongoing fiscal issues, as factors weighing on the currency. “Fiscal concerns are also sterling negative,” Niven added.

Last week, Deutsche Bank urged investors to sell the pound, warning of the market volatility that has contributed to its recent weakness.

Economist Shreyas Gopal said: “There’s further to go in the recent pound weakness.”

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Investor sentiment has been shifting as demand for options trades on the pound has surged by 300%, according to Barclays. Mimi Rushton, head of currency distribution at the bank, said that hedge funds are betting on the pound's continued weakness.

The pound’s struggles were compounded by a sell-off in UK government bonds, known as gilts, which pushed yields higher. The rise in yields is a reflection of investor unease about the UK’s fiscal health.

If the bond sell-off persists, it could prompt the Chancellor to reconsider her tax and spending plans, or risk breaching her fiscal rules. Chancellor Reeves has maintained her stance on the “non-negotiable” nature of these rules, despite the pressure on the currency.

The pound was also lower against the euro (GBPEUR=X), trading at €1.1893.

Gold (GC=F)

Gold prices edged lower in early European trading as traders adjusted their expectations for US interest rate cuts, following stronger-than-expected nonfarm payrolls data that boosted the dollar.

The spot price lost 0.1% to $2,688.72 per ounce, while gold futures slipped by the same 0.1% margin to $2,711.50 per ounce.

IG market strategist Yeap Jun Rong hinted that weaker US economic data would be crucial to alleviating the pressure on gold. “Weaker US data ahead will be the much-needed catalyst here in taking some heat off the 'economic resilience' story and call for a meaningful reversal in yields,” he said.

However, he cautioned that the data calendar for the week pointed to a “cautious outlook for now.”

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