Pound Sterling Rebounds as UK Gilt Yield Surge Eases

The Pound Sterling (GBP) found relief on Wednesday, bouncing back from a four-week low near 1.3330 against the U.S. Dollar (USD) during the European session. The GBP/USD pair climbed back toward 1.3400, supported by a temporary pause in the global bond sell-off and softer U.S. Dollar momentum.

Key Market Drivers

• Sterling rebounds as 30-year UK gilt yields pull back from a multi-decade high of 5.75%.
• Global bond markets remain volatile, with investors concerned over rising government borrowing and fiscal deficits.
• Chancellor Rachel Reeves’ comments on strict fiscal rules boosted confidence in the British currency.
• Markets now focus on U.S. JOLTS Job Openings (July) and the upcoming Nonfarm Payrolls (NFP) data for August.

Gilts Pause After Historic Surge

UK government bond yields eased slightly after a steep rally that saw 30-year gilts hit their highest level since 1998. Analysts attribute the spike to concerns about ballooning fiscal deficits and uncertainty ahead of the Autumn Budget, which may include spending cuts or tax increases.

The pause in gilt yields provided breathing room for the Pound, though broader market jitters remain. As one National Australia Bank analyst noted, there’s “a lack of confidence in governments effectively addressing deficits and debt growth.”

Policy and Political Backdrop

Comments from UK Chancellor Rachel Reeves helped calm investor nerves, with reassurances that the government will prioritize reducing inflation and borrowing costs through tight fiscal management.

Meanwhile, U.S. developments also shaped market sentiment:

• A U.S. appeals court ruling struck down most of former President Trump’s tariffs, setting the stage for a Supreme Court appeal.
• The ISM Manufacturing PMI showed contraction for the sixth consecutive month, coming in at 48.7—slightly higher than July’s 48.0 but still below the 50 threshold for growth.

Fed Expectations and U.S. Data Focus

Markets are heavily focused on upcoming U.S. economic releases, particularly:

• JOLTS Job Openings (July): Forecast at 7.4 million, in line with 7.44 million previously.
• Nonfarm Payrolls (August): Due Friday, seen as the week’s biggest catalyst for GBP/USD.

According to the CME FedWatch Tool, markets currently assign a 92% probability of a 25 basis-point Fed rate cut in September. Several FOMC members have recently emphasized the need for policy adjustments amid weakening labor market data.

GBP/USD Technical Outlook

From a technical standpoint, the GBP/USD pair is showing signs of recovery but remains in a short-term bearish trend:

• Price trades below the 20-day EMA (1.3463).
• The 14-day RSI hovers near 40. A drop below this level could trigger renewed selling momentum.
• Support: 1.3140 (August 1 low).
• Resistance: 1.3600 (August 14 high).

Unless the pair breaks decisively above the 1.3460–1.3600 resistance zone, downside risks remain intact.

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