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The Pound Sterling dropped sharply, hitting its lowest levels in over a year against the US Dollar, as UK bond yields surged to multi-decade highs. Persistent inflation worries and UK fiscal policy uncertainties have overshadowed any positive impact of higher gilt yields. Additionally, the US Dollar strengthened due to strong economic data and inflation risks, compounding GBP/USD losses. With traders pricing in multiple Bank of England rate cuts, the outlook for the British Pound remains bearish in the near term.

Key Highlights

* Pound Sterling declines below 1.2300, lowest level in over a year.

* UK gilt yields spike, reaching the highest since 1998, raising fiscal concerns.

* Inflation pressures and doubts on fiscal commitments weigh on the Pound.

* US Dollar strengthens amid robust economic data and tariff concerns.

* BoE rate cuts anticipated, further pressuring GBP/USD sentiment.

The Pound Sterling slumped to its lowest level in over a year, trading below 1.2300 against the US Dollar during Thursday’s session. A sharp sell-off in UK bonds has pushed 30-year gilt yields to 5.36%, the highest since 1998. Normally, rising bond yields boost the currency, but concerns about persistent inflation and UK fiscal policy commitments have overshadowed this dynamic. Traders remain skeptical about the government’s ability to meet its fiscal rules without further tax increases, adding to bearish sentiment.

Supporting the Pound’s decline, the US Dollar continued its rally, bolstered by strong economic data. The US Dollar Index (DXY) climbed near 109.25, driven by robust ISM Services PMI data and fears of renewed inflationary pressures. President-elect Donald Trump’s tariff hike plans further fueled USD strength, as they are expected to stimulate domestic growth but elevate inflation risks.

Meanwhile, the Bank of England (BoE) faces challenges in managing monetary policy as inflation remains stubbornly high. Traders are pricing in multiple rate cuts for 2024, which could lower the policy rate to 3.75% by year-end. This dovish outlook further undermines the Pound, with analysts predicting continued downward pressure on GBP/USD.

Finally

The Pound Sterling faces headwinds from soaring UK bond yields, inflation concerns, and BoE rate cut expectations. Immediate resistance lies near 1.2350, with support seen at 1.2185.

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