26/02 – Has sterling started to collapse?

26/02 – Has sterling started to collapse?

GBP: Loses 1.40 level overnight

EUR: Calm in the storm

USD: Rallies as US bond yields fly


All good things must come to an end and sterling’s time above the 1.40 mark in GBPUSD ended rather unceremoniously last night as the dollar rallied after movements in US bond markets set the hares running.

Sterling is the G10 currency that is most highly correlated with risk, which took a tumble yesterday, and as we have pointed out previously, also suffers from weak fundamentals. The pound did not belong at those levels and the market has finally noticed.

That is not to say that sterling is done for but it may have to rely on self, generated, home-grown optimism as opposed to surfing higher on wider risk sentiment.

We may have to wait until Wednesday’s Budget for those signs although – as with everything political nowadays – we expect details of the Chancellor’s plans to be well leaked in this Sunday’s papers.


In the midst of all the fun and games in risk yesterday the euro has stayed resolute and GBPEUR is back towards a sensible price for the pair that levels in the 1.16s were not. If the next week remains volatile in wider markets and the EU manages to sort out its vaccine program then the days of a weak euro could come to an end quickly.

US dollar

It is difficult to summarise the movement in US bonds yesterday given the knowledge that to a casual observer a move from 1.38% to 1.52% in any asset seems so small as to be irrelevant. In actual fact that move of 14bps has only happened three times in the past 5 years – yesterday, during the peak of the pandemic fears last March and, on Election Day 2016 as Donald Trump became President.

These moves can happen for a number of reasons; fear over inflation, concerns over debt levels, joy over a red-hot recovery or just a good old-fashioned rout. For now, it looks like markets betting on a US-led recovery from the pandemic that blows expectations of the Fed being able to sit on its hands and not raise rates out of the water.

The key thing now is whether the Fed decides to act because it has fallen to far behind the curve or whether it remains sanguine in the face of these bond moves. We think the latter which may mean more volatility and unpredictability for the USD moving forward.


Given the movement in US debt markets and the subsequent impact on the USD, it is no surprise that emerging market currencies have gone absolutely tonto overnight.

I could list everything that has happened overnight but safe to say if you were looking to buy a currency that is not USD, JPY, CHF or something pegged to the USD then you are likely to be getting a better price today than you were yesterday.

Have a great day and a better weekend

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Jeremy Thomson-Cook

Jeremy Thomson-Cook

Jeremy has over 13 years experience working in the FX industry. As a specialist in political risk mitigation and currency hedging, he regularly advises clients on the day-to-day moves of the markets and the implications of fiscal and monetary policy on international businesses.