EURGBP - Will the pound continue to fall?The EURGBP currency pair is above the EMA200 and EMA50 in the 4-hour timeframe and is moving in its upward channel. The continued rise of this currency pair towards the supply zone will provide a position to sell it with a suitable risk reward. In case of downward correction, we can buy within the demand zone.
Yesterday, Reeves, the UK Chancellor of the Exchequer, faced questions from Members of Parliament following a significant increase in the sale of UK government bonds. Sir Lindsay Hoyle, the Speaker of the House of Commons, accepted an urgent query raised by Conservative opposition members. This compelled Reeves to appear in Parliament on Thursday morning, as the yield on 10-year UK government bonds surged to 4.93%, the highest level since 2008.
The pound also dropped during this market turmoil, reaching $1.224, its weakest level since November 2023. The rising yields on UK government debt have posed a serious challenge to Reeves’ fiscal plans, constraining the government’s borrowing capacity under its budgetary rules. Borrowing costs have spiked as investors grow increasingly concerned about the government’s heavy borrowing needs and the mounting risk of stagflation.
Jones, a senior official at the UK Treasury, stated that only the Office for Budget Responsibility (OBR) could predict the impact of bond market movements on the fiscal outlook. He emphasized that the government remains committed to strict fiscal rules, ensuring public spending stays within budget limits. He also noted that public services must operate within their allocated resources, dismissing the need for any emergency intervention by the Treasury.
Meanwhile, Breeden, a member of the Bank of England, commented that recent data suggest it may be time to ease restrictive policies.She expressed the need to understand the causes behind the slowdown in economic activity and how employers are coping with higher hiring costs. While economic activity appears somewhat subdued, Breeden added that it is expected to rebound.
According to a Citi/YouGov survey, UK households’ one-year inflation expectations have risen to 3.7%, while their long-term inflation expectations have climbed to 3.9%. Concurrently, the UK Debt Management Office plans to syndicate and reissue the 4.375% 2040 bonds in the week starting January 20. This move aims to finance the government and manage public debt.
Separately, Cipollone of the European Central Bank remarked that monetary policy should enable the Eurozone economy to operate at full capacity while avoiding demand reductions that could trigger inflationary shocks. He highlighted structural issues in Europe’s industrial sector, including declining productivity relative to the US and excessive reliance on foreign technological solutions. Cipollone further noted that Europe has lost its edge in innovation and scalability due to fragmented markets and a defensive, nationalist approach.
