The Pound has suffered its biggest fall in 18 months following Chancellor Rachel Reeves’s Autumn Budget.
Over the past three days, sterling dropped by 1.2%, according to an Intraday Price Chart.
By 2pm today, the pound had reportedly decreased from 1.3003 to 1.2938 against the dollar, while the exchange rate moved from 0.8355 to 0.8394 against the euro.
Ed Conway, economics and data editor at Sky News shared the figures on social media platform X, adding that gilt yields also are “pretty much halfway towards the danger zone”.
Gilt yields – the interest rates paid on British Government bonds – spiked after Ms Reeves’s speech on Wednesday.
Gilt yields affect swap rates, which are predictions of future interest rates. Swap rates influence mortgage rates, and these typically move in tandem with gilt yields.
Virgin Money became the first lender the hike mortgage rates last night, increasing interest by up to 0.15% across its fixed-term deals.
However, Accord Mortgages and Santander announced a spate of rate reductions, casting doubt on whether this increase will become a broader trend at present.
Mr Conway pointed out that the markets are “volatile”, and trying to interpret movements in Government bonds is “very tricky”.
However, he noted: “There has been a marked rise in UK bond yields following the Budget which is greater than what we’re seeing in other markets. This morning the UK 10 year bond yield hit the highest level in nearly a year. It’s up 1.7% since [yesterday] – far more than US or German equivalents.” (sic)
Mr Conway continued: “Now… it’s only day one after the Budget. Plenty could happen in the coming weeks and months. But the upshot is Rachel Reeves’s room for manoeuvre is already diminishing because of market moves. Not good.” (sic)
Kyle Chapman, FX market analyst at Balli
Mr Chapman explained that the pound-dollar exchange rate is dropping even though interest rates suggest it should be rising. This is due to a ‘bad’ spike in yields, as markets seem to view the budget’s borrowing and spending plans as excessive.
Mr Chapman continued: “The Office of Budget Responsibility (OBR) reckons that the net effect is an average of over £30billion a year in increased gilt issuance over the next five years, and a total supply of nearly £300billion in this fiscal year.
“Yields have risen over the past couple of days in response to the increased bond supply, but the move has intensified over the course of this afternoon. The volatility in the gilt market has been extraordinary, with the 10-year yield up 30bps in the past 24 hours alone.”
Prem Raja, head of trading floor at Currencies 4 You, added: “As the markets properly digest the Budget, the taste is turning sour. Bond markets have opened this morning with a negative reaction to the news after digesting the level of borrowing required over the next few years. With 10-year Gilts already higher, this will be key to watch over the coming days.”
