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Euro Slides as European Bond Yields Surge on Fiscal Concerns
The euro slipped toward $1.16 on rising European government bond yields, as investor focus shifted to mounting fiscal concerns.
French and German 30-year yields hit levels not seen since 2011, during the eurozone sovereign debt crisis.
Germany’s medium-term finance plan foresees roughly €500 billion in net new borrowing through 2029 to fund increased infrastructure and defense spending.
In France, concerns over the country’s debt burden are a key factor behind the prime minister’s confidence vote scheduled for next week.
Meanwhile, eurozone inflation accelerated to 2.1% in August, slightly above both market expectations and the ECB’s 2% target, reinforcing forecasts that the central bank will keep interest rates unchanged at next week’s meeting.
Sterling Slides as Gilt Yields Spike
The British pound fell below $1.34 on Tuesday, its weakest level since early August, amid a sharp rise in long-dated UK government bond yields due to concerns over the country’s fiscal outlook.
The yield on the 30-year gilt climbed to its highest since 1998, intensifying pressure on Chancellor Rachel Reeves ahead of the Autumn Budget and further squeezing already limited fiscal space.
Reeves is widely expected to announce tax increases to rein in the deficit.
Political attention also turned to Westminster, where Prime Minister Keir Starmer unveiled a cabinet reshuffle on Monday.
Meanwhile, investors are focused on the Treasury Committee’s questioning of Bank of England policymakers for signals on the path of interest rates and any potential adjustments to the central bank’s quantitative tightening program.
Traders turn to the dollar as yields blowout finally takes a toll on markets
It seems like the blowout in bonds (yields surging higher) is seeing a rush to cash. Margin calls being hit? We’re also starting to see equities get struck down as well with S&P 500 futures now lower by 0.6% on the day.
The gilts market made headlines earlier when 30-year yields, currently at 5.69%, ran up to its highest since 1998. The move higher has been coming all through August and it’s also the same case for the likes of Europe, Japan, and the US. However, today looks to be the straw that breaks the camel’s back as we see broader market implications hit.
In response, the FX market is seeing strong bids into the dollar pile in. EUR/USD is down 0.6% to 1.1640 and USD/JPY is up 1% on the day to 148.60 currently.
What looked like a potentially quiet session in Europe has turned out anything but that at the moment.
GBP/USD is also now down 1% to 1.3405 and even USD/CHF is more bid, up 0.3% on the day to 0.8030 currently. In turn, risk currencies are also lower with AUD/USD down 0.7% to 0.6505 on the day.
As much as we are seeing spillovers to broader markets, it’s best to keep a level head on the situation at hand. A call for correction in equities is definitely something to be wary about especially if long-end yields continue to blow up in the week(s) ahead.
The US yield curve continues to steepen and if that’s a sign of a policy mistake by the Fed, it’s not exactly one that will be all too supportive for the dollar amid ongoing political pressures and a confidence/credibility hit.
And despite the initial setback to gold we’re seeing at the moment, the precious metal stands to reason to shine in this sort of environment. So, do keep an eye out for dip buyers in trying to seize the opportunity here once the dust settles.
GBPUSD
The biggest loser today
You can see by this chart why 1.3390 is important as there is big void below it
Low so far 1.3375 after stops run…needs to trade above 1.3390 to cool the risk… treat any bounce, should one occur, as retracement while it trades below 1.35
Below 1.3390 is very bearish.
GBPUSD DAILY CHART
Using my platform as a HEATMAP shows,,,
.. the start of post summer trading fids markets in a risk off mood with both the odd mic of both GBP and JPY both underperforming> usd is getting a bid from a flight to safety< which has not been its role lately>
On order of strength vs the USD
1. CAD
2. CHF
3. EUR
4. AUD
5. NZD
6. JPY
7. GBP
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