Pound sterling sinks and gilt yields rise after US jobs report
The pound plummeted against the dollar while gilt yields came under further pressure after new figures revealed the continued strength of the US economy.
According to the latest report on the US labour market, the world’s largest economy added 256,000 roles in December, accelerating from November and well ahead of economists expectations.
Unemployment, meanwhile, unexpectedly dipped to 4.1 per cent, whereas experts had expected it to remain at 4.2 per cent.
“The report pointed to the labour market having remained solid as 2024 drew to a close,” Michael Brown, senior research strategist at Pepperstone, said.
The continued strength of the US economy will likely convince rate-setters at the US Federal Reserve that a cautious approach to cutting interest rates is necessary.
Following the figures the pound slumped 0.8 per cent against the dollar to $.122, its lowest level since November 2023.
Markets have pared back bets on the pace of interest rate cuts, reflecting the continued strength of the economy as well as the potential inflationary boost from Donald Trump’s tariffs.
Traders now do not expect the Fed to cut rates until October, having previously been betting on a June cut earlier this week.
Bets on US interest rates have spillover effects around the world and in recent weeks sovereign debt markets have come under particular pressure as investors anticipate higher global rates.
Neil Birrell, chief investment officer at Premier Miton Investors, said the latest figures would do little to ease the pressure facing government bonds.
“The jump in bond yields looks set to continue,” he said.
The UK is particularly exposed to these market movements because international investors hold a relatively large chunk of UK government debt.
The cost of UK government debt picked up across the maturity profile after the release of the figures, continuing a brutal week.
The yield on the benchmark 10-year gilt, which hit its highest level since 2008 on Wednesday, was up 0.07 per cent to 4.88 per cent while the yield on the 30-year gilt rose 0.09 per cent to 5.47 per cent.
“The peak for yields has not yet been reached, suggesting additional stresses that several markets, especially the UK, can ill afford,” Seema Shah, chief global strategist at Principal Asset Management, said.