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GBP/USD slips after UK yields climb on heavy gilt supply

Sterling weakened while UK 10-year gilt yields rose above 5.20%, as investors digested both rate uncertainty and upcoming increases in gilt issuance after September 17.

Reported · Written up by our desk · Major Pairs

Sterling has given back its late-August gains, with GBP/USD trading just below 1.3500 after dipping to around 1.3475 during the session, leaving the pair at its weakest level in about three weeks, FXStreet reports. The move is roughly 1.5% below the August peak near 1.3700 reached in the final days of the month.

The decline has been unusual given the backdrop for UK government bonds. UK 10-year borrowing costs pushed above 5.20% this week, the highest since 2008, and the long end also marked fresh 18-year highs, but GBP did not benefit as it typically might when higher yields attract foreign demand for gilts.

FXStreet points to the September 17 Monetary Policy Committee meeting as a key complication, because the decision is paired with the publication of the pace of gilt sales. That means the variable the long end focuses on, expected supply, is bundled into the same announcement as the rate outcome Sterling watches, reducing the appeal of buying long-dated paper.

The outlet also links the broader policy and risk backdrop to shifts in US rate expectations after Jackson Hole, when the central bank chair argued inflation had not slowed meaningfully. It adds that pricing for a US hike at the September 16 meeting roughly doubled within an afternoon to around two thirds, with renewed US strikes on Iranian targets and Iranian retaliation across the Gulf keeping crude oil above $90.00.

Latest closeWTI crude $90.70 ▲0.5%|GBP/USD 1.348 ▼0.2%

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