Pound Slides As U.K. Borrowing Costs Soar

The British pound weakened against other major currencies in the European session on Thursday, on worries about the rising borrowing costs in the U.K. and the stagflation threat.

The 10-year borrowing costs in the U.K. skyrocketed to their greatest levels since the 2008 financial crisis, the bank borrowing nearly came to a complete standstill.

The fall has led economists to warn that as the government attempts to reach its self-imposed borrowing target, the growing expenses may result in further tax rises or cuts to spending plans, just months after Chancellor Rachel Reeves announced GBP 40 billion of tax rises in her October budget.

A cautious undertone prevailed as the government bond yields surged on concerns about potential tariffs under the Donald Trump presidency and prospects of fewer interest-rate cuts by the Federal Reserve this year.

In economic news, data from the S&P Global showed that U.K. permanent placements as well as vacancies declined at faster rates in December as companies evaluate the impact of tax hikes announced in the October budget.

Permanent placements declined the most since August 2023, the KPMG/REC Report on Jobs survey showed.

Amid growing cost consciousness amongst firms especially in the context of the recent government Budget and the announced increase in employee National Insurance contributions, demand for candidates declined in December. Temp billings also decreased further.

In the European trading today, the pound fell to more than a 2-month low of 0.8404 against the euro and nearly a 2-month low of 1.2239 against the U.S. dollar, from early highs of 0.8345 and 1.2365, respectively. If the pound extends its downtrend, it is likely to find support around 0.85 against the euro and 1.21 against the greenback.

Against the Swiss franc and the yen, the pound slid to nearly a 3-week low of 1.1175 and nearly a 1-month low of 193.69 from early highs of 1.1261 and 195.61, respectively. On the downside, 1.10 against the franc and 190.00 against the yen are seen as the next support levels for the pound.

Looking ahead, U.S. weekly jobless claims and U.S. wholesale inventories data for November are slated for release in the New York session.

U.S. markets will remain shut today in observance of a National Day of Mourning for former President Jimmy Carter.