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GBP/USD slips toward 1.3450 as US yields draw safe-haven demand

The pound’s weakness comes as UK-US yield spreads narrow and oil-driven inflation worries leave the Bank of England facing a stagflationary tradeoff.

Reported · Written up by our desk · Major Pairs

GBP/USD extended losses for a second straight day, trading around 1.3450 in Asian hours on Friday, as the British pound softened while the US dollar strengthened, FXStreet reports. The move reflects renewed softening in UK yield spreads, which is weighing on near-term support for sterling.

FXStreet adds that UK political risk has faded after the recent political transition and PM Burnham’s arrival, with Scotiabank noting sentiment has improved as investors fade politically motivated concerns. The positive tone is offset by pressure from softer yield differentials.

The article also points to rising oil prices reviving fears of stickier inflation and sluggish UK growth, creating a stagflationary dilemma for the Bank of England. It notes that at last week’s meeting, Governor Andrew Bailey played down the need for further rate hikes, while current pressures put that stance under renewed scrutiny.

For sterling and the dollar, FXStreet links the broader risk backdrop to heightened safe-haven demand for USD after escalating tensions in the Strait of Hormuz. It also cites a more hawkish tone from Fed’s Musalem, including concerns that inflation expectations could lose their anchor even if they are currently near the 2% target.

Latest closeGBP/USD 1.345 ▼0.1%

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