The GBPJPY exchange rate is set to be in the headlines again as the country’s finances come under scrutiny after a bond market rout.
GBPJPY – Daily Chart
GBPJPY broke lower through support and is now pointing lower with the 188-190 level in focus.
The cost of borrowing for the UK government has soared to its highest level for more than 25 years as gilt yields continue to rise. Only months after the Budget, the yield on 30-year gilts reached more than 5.25% for the first time since 1998.
Meanwhile, the yield on 10-year gilts rose to 4.8%, which is the highest since the 2008 financial crisis. The yield is now also higher than the level they were when former Chancellor Liz Truss caused a mini-budget panic in the market back in September 2022.
The UK government now faces calls to cut spending in public services and announcements could have an effect on the pound this week.
“This is undoubtedly a blow to Chancellor Rachel Reeves whose credibility with the markets and business leaders has been bruised by the Budget,” said Jason Hollands at Evelyn Partners.
“The surge in long-term yields represents a real challenge for the Chancellor when it comes to sticking to her fiscal rules. Ultimately, it will pile pressure on either increased spending restraint, or the potential for further tax rises, neither of which are going to be palatable to the public,” he added.
