GBP/USD Plunges 2% Amid UK Economic Turmoil and Bond Yield Spike

Today's expected range for the Canadian Dollar against the major currencies:

US Dollar        1.4320-1.4530

Euro                 1.4610-1.4830

Sterling            1.7330-1.7600

WTI Oil (opening level) $78.03

The CAD is opening at 1.4430 ( 0.6930) 

The biggest move in the currency market last week was in the GBP/ USD. Falling more than 2% in the last week!

It has been dramatic, as a perfect storm of economic challenges undermine the UK's financial stability. Prompting traders and investors to question Britain's economic resilience. The weakness lies in the government bond yields to levels note seen in decades. The 10 year yield is the highest since 2008 and the 30 year yield broke through 5.3%, the highest level since 1998. This calls into question the government's fiscal flexibility.

Britain continues to grapple with sluggish growth and elevated price pressures. With persistent inflation and economic stagnation, creating a challenging environment. Combined with higher taxes from the October budget putting a strain on the labor market.

It's no wonder that market sentiment is negative. So traders are selling off their positions, creating this bearish movement in the currency.

The December US jobs report Friday showed a strong labor market, with nonfarm payrolls rising by 256,000 (vs 160,000 est.) and a drop in the unemployment rate to 4.1% (vs 4.2% est). This sparked worries that the Federal Reserve might delay further cuts to the policy rate.

 The preliminary University of Michigan sentiment survey for January revealed a mixed economic outlook, with current economic conditions improving slightly to 77.9 from 75.1, while expectations declined to 70.2 from 73.3. Notably, there was a sharp increase in both 1-year and 5-year inflation expectations to 3.3%, from 2.8% and 3.0% in December, respectively, indicating growing consumer anxiety about future price pressures, particularly among lower-income groups.

Canada finished 2024 with its strongest job gains in two years, right before a potential tariff conflict with the US. Employment rose by 91,000 in December, the largest increase since January 2023, lowering the unemployment rate by 0.1 percentage points to 6.7%. 

China’s trade surplus soared to an unprecedented USD 992 billion in 2024, up 21% on the previous year, driven by record exports ahead of Trump’s tariff and weak domestic demand leading to sluggish imports. Exports rose 11% in December to USD 336 billion, the second highest on record, while imports only managed a 1% rise.