The US dollar declined to its lowest point since 2022 against major trading partners, driven by reduced geopolitical tensions following progress on an Iran-US nuclear deal and uncertainty surrounding the Federal Reserve's leadership transition.
The British pound fell 0.4% to €1.13, marking its weakest level since April 2023. Against the dollar, sterling dropped 0.5% to $1.3086. Simon Phillips, Managing Director at No1 Currency, noted mounting pressure on the pound as market dynamics shift.
Safe-haven currencies strengthened amid the dollar's weakness. The Swiss franc gained as investors repositioned portfolios, reflecting a broader currency market realignment. Risk-sensitive currencies faced downward pressure despite the easing of geopolitical concerns.
UK gilt markets showed strain as 30-year yields climbed 4 basis points to 5.21%, the highest level since August 1998. The 2-year and 10-year yields also rose. An inflation-linked bond auction drew £69 billion in bids for £4.25 billion of debt, exceeding March's record of £67.5 billion. Britain ties approximately 25% of its government bonds to inflation, compared to roughly 10% in the US and France.
Jordan Rochester, analyst at Mizuho Bank, forecast the pound could fall below $1.30 as Chancellor Rachel Reeves prepares to unveil the November 26 budget. Markets anticipate additional tax increases to address what the government characterizes as a substantial hole in public finances.
The dollar's decline reflects shifting expectations around Federal Reserve policy as the central bank approaches a leadership transition. Markets are recalibrating positions based on potential changes to monetary policy direction and the impact of improving US-Iran relations on global risk sentiment.
Neil Wilson, analyst at Saxo Markets, warned of fiscal instability risks affecting currency valuations. Kathleen Brooks, Research Director at XTB, highlighted the significance of elevated gilt yields in the current environment.
The currency realignment coincides with record highs in European equity markets. The Stoxx 600 reached 583.4 points, up 0.6%, while the FTSE 100 closed at 9,911, just shy of an intraday peak of 9,930. Gold prices rose above $4,100 per ounce as investors sought alternative stores of value amid currency volatility.