GBP/USD price remains subdued near 1.2300 as fiscal concerns mount
GBP/USD struggles near 1.2300 as fiscal outlook weighs
GBP/USD remains under pressure for the fourth consecutive day, trading near 1.2300 during Friday's Asian session. The pair touched a 14-month low of 1.2238 on Thursday as mounting concerns about the UK’s fiscal and inflationary outlook drove investor sentiment lower.
While long-term UK bond yields surged—reaching levels last seen in 1998 for 30-year yields and 2008 for 10-year yields—the British Pound failed to capitalize on this rise. Instead, fears of persistent inflation and fiscal instability have triggered capital flight, undermining confidence in the currency.
UK Chief Secretary to the Treasury Darren Jones reassured markets on Thursday, stating that UK financial markets continue to function in an "orderly way." However, investor expectations of additional Bank of England (BoE) rate cuts later this year further exacerbated the Pound’s weakness.
GBP/USD price dynamics (Nov 2024 - Jan 2025) Source: TradingView.
US dollar gains amid hawkish Fed outlook
On the other side of the equation, the US dollar (USD) continues to benefit from hawkish Federal Open Market Committee (FOMC) Meeting Minutes and uncertainties surrounding proposed tariff changes under the incoming Trump administration.
The US dollar Index (DXY), which measures the greenback’s performance against a basket of six major currencies, remains steady above 109.00. The minutes emphasized policymakers' concerns over inflation and projected a slower pace of rate cuts in 2025, given the persistence of higher-than-expected inflation data.
Market focus turns to labor data
Looking ahead, traders are closely monitoring upcoming labor market data in the US, with Nonfarm Payrolls (NFP) expected to drop to 160,000 in December from the previous 227,000. This data is expected to provide further insights into the Federal Reserve's policy trajectory.
In our previous analysis, we highlighted GBP/USD's inability to gain traction amid rising US Treasury yields and geopolitical uncertainties. Recent developments reinforce this narrative, emphasizing the challenges faced by the British Pound.
