Market Update

GBP has fallen by 1% against the Euro and just under against the USD; the sharpest decline of 2021 in response to a sharp sell-off in global stock markets. Last night’s move suggest Sterling has adopted a ‘risk on’ status alongside the mood of the global investor community.

Investor sentiment is deteriorating with global stock markets dropping sharply amidst a rally in global bond yields – US bond yields being of particular interest. Sterling has acted like a ‘risk on’ / ‘high beta’ currency since Brexit fears faded after the signing of the December EU-UK trade deal: therefore, what happens in stock and bond markets matters for the Pound at this moment.

The yield paid on U.S. ten-year bonds has shot up sharply over the past 24 hours, but so too has the rate on 5 year and 7-year yields. In fact, a poorly subscribed auction for U.S. 7-year bonds on Thursday was cited as sign that a significant market shift is underway.

The rising bond yields suggest investors are fearful that inflation will rise sharply over coming months and years as economic growth returns, which would force central banks into exiting their generous quantitative easing programmes and raise interest rates. It is this central bank stimulus that has pumped global equity markets to current highs and fuelled strong investor returns, a trend that had helped Sterling.

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