Economic turmoil weighs down on Sterling and Yen due to concerns about budget issues and political instability
Global Markets: 28th September 2023
In today's market update, we examine the recent shifts in currency values and bond yields across the globe.
The U.S. Treasury yield eased slightly on Wednesday, with the two-year yield settling at 3.6495%. Meanwhile, the 30-year yield hovered just below 5%, mirroring the broader global surge in long-dated bond yields. This renewed selling of long-dated government bonds in Europe and the United States is a response to investor concerns over global fiscal health and rising debt burdens in major economies, which rekindled worries that governments are losing control of their budget deficits.
The New Zealand dollar was 0.14% lower at $0.5857, while the Australian dollar slipped 0.1% to $0.6514. The sterling was trading 0.12% lower at $1.3378, following Britain's 30-year borrowing costs reaching their highest level since 1998 on Tuesday, causing the sterling to slip more than 1%.
The yen was weaker, down 0.2% at 148.62 per dollar after a 0.8% slide the day before. Political uncertainty in Japan, particularly the potential resignation of Prime Minister Shigeru Ishiba, is weighing on the yen. Hiroshi Moriyama, secretary general of the ruling party and close aide to Prime Minister Ishiba, announced his resignation, adding to the uncertainty. Sanae Takaichi, a potential successor to Prime Minister Ishiba, is widely seen as favoring ultra-low domestic interest rates, which could further pressure the yen.
The euro edged 0.1% lower to $1.1630, extending its earlier fall. Markets are concerned about the upcoming autumn statement in the UK and whether the government will take credible steps to tackle the deficit and the rapid build-up of debt. The UK government, led by Prime Minister Keir Starmer and Finance Minister Rachel Reeves, is under significant pressure to present a clear plan by the autumn budget to consolidate public finances by either raising taxes or cutting spending, aiming to reduce the £35 billion deficit without further harming the already weak economy.
The dollar rose 0.66% on Tuesday, buoyed by the weakness in sterling and the yen. As of last stand, the dollar was at 98.44 against a basket of currencies.
Ray Attrill, head of FX research at National Australia Bank, stated that the current situation is a Europe-wide issue, but the UK is particularly affected due to the memory of the Liz Truss episode and upcoming fiscal concerns.
Traders are closely watching this week's series of U.S. labour market data releases, which are expected to help guide Federal Reserve policymakers on the likelihood of a rate cut later this month.
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