Pound Plunges Amid Global Bond Turmoil

The British pound hit its lowest in late 2023 due to a global bond selloff, raising UK government's borrowing costs to a 16-year high. This scenario pressures Britain's finances, sparking concerns and testing Finance Minister Rachel Reeves' strategy amidst a deteriorating fiscal outlook.

The British pound faced a steep decline on Thursday, reaching its lowest point since late 2023. The drop was triggered by a global selloff in bonds, sharply increasing the UK government's borrowing costs to their highest in over 16 years. This has reignited concerns about the stability of Britain's finances.

This week saw global bond yields soar, driven by fears of rising inflation and uncertainty surrounding the policies of U.S. President-elect Donald Trump. The UK market was particularly affected, with benchmark 10-year gilt yields jumping considerably, signaling a shaken confidence in Britain's fiscal future. As of Thursday afternoon in London, some of the selling pressure had decreased, stabilizing yields around 4.81%.

Finance Minister Rachel Reeves faces mounting pressure as this turmoil prompts potential future spending cuts. Despite higher gilt yields typically supporting the pound, the current breakdown in this dynamic reflects investor unease concerning the country's financial health.

(With inputs from agencies.)