Pound Sterling experienced the worst decline this year. That happened in the last 24 hours or last one day. The GBP/USD declined by more than 100 pips. Meanwhile, EUR/GBP was up by more than one percent in the global trading market.
The depreciation triggered by the United States bond yield increase and the condition of the dollar is stronger. Furthermore, many analysts also thought that the Pound has been overvalued. That triggers many situations and changes.
The investors' sentiment is worse. That can be seen from the decline of global stock data and the United States bond yield that increase. The European session was also strengthened. The American bond yield has the tenor of 10, 7, and 5 in a year.
US Treasury Lost Its Consumer
The yearly 10, 7, and 5 tenors stated above were increasing at the same time. Meanwhile, the 7 years tenor for the US treasury lost its consumers. This situation has a negative impact on the Pound sterling. The movement of this currency is identical to the stock trend.
Besides that, it is also in line with the high-risk asset since Brexit was legalized some time ago. The increase in bond yield showed that the investors are quite worried about inflation. They thought it will be up significantly in the next few months or years.
That makes the Central Bank Decided to maintain its loose interest rate. However, in fact, monetary stimulus is actually the one that pushes the increase of global stocks to their highest level after the pandemic. That also makes the investors buy the high-risk assets.
The safe-haven USD responded in line with the expectation on the risk-of scenario. That increased significantly on the market’s traffic and guided the decline on several risk currencies. The examples are AUD, CAD, and also GBP.
Why Pound Became so Expensive
Several currencies such as JPY and EUR was also fallen versus USD. However, it won the match between the cross couple. That is why; EUR was stronger than GBP. Euro was above the GBP in the safe-haven currency rank. That is noted based on the data.
Before the drop of Pound sterling yesterday, several analysts from HSBC and other Rabobank members have been expressed their doubt on the GBP/USD rally which was up until more than 1.41. They thought the pound was too expensive.
That has happened because several problems become the basis of this currency fundamental. The vaccination program in England is successful and bringing so many hope to handle the pandemic. However, the economic performance is still far from the expectation made by people.
It is even not better than the United States of America. Several issues due to Brexit were still unfinished. Now, those are appearing one by one. Furthermore, the England forward interest rate level is in line with those which are happened in the G10 countries.
The Lockdown Policy in England and Its Impact
The interest rate situation stated above was still happened although the central Bank of England has been clarifying that they will not support the negative interest rate. For your information, British is now having a plan due to its lockdown policy.
The government may loose the lockdown as soon as possible. However, this plan can trigger several conditions in the future. One of them is the pound bullish bias which could happen in the future. However, that may happen in only a certain situation.
That is when the England government agree to continue the distribution of its fiscal stimulus. However, many things may change ahead. That is why; the market participants are now still highlighting some updates and release in the market. They need it to take a further action.
