The pound is declining as UK long-term yields rise. The 30-year yield has reached 5.68%, the highest since 1998. This puts pressure on leaders to create a plan for market stability and rebuild trust. Long-end yields have been increasing in the UK, US, and euro area. In the US, 10-year yields have gone up by 4 basis points to 4.270%, and 30-year yields are up 5 basis points to 4.965%. This supports the USD/JPY, which is up by 0.7% to 148.20.

Currency Performance

In currency performance, the pound is weak, with GBP/USD down 0.5% to 1.3483. Other major currencies are also slightly falling against the dollar, suggesting a cautious start to trading. The sharp rise in yields may negatively impact broader markets and risk sentiment. We need to keep an eye on how equity markets react as the day progresses. The pound is under significant pressure as UK long-term borrowing costs rise. The 30-year Gilt yield hitting 5.68% seems to follow a delay after the August ONS data showed headline CPI unexpectedly rising to 3.1%. Now, the market looks to leaders like Keir Starmer and Rachel Reeves for a plan to boost confidence. This situation brings back memories of the Gilt market crisis from autumn 2022, after the Truss government’s mini-budget. Traders are increasingly worried about the UK’s debt sustainability, especially with concerns over financing green energy subsidies. This history suggests that the pound is likely to keep declining.

Risk Management Strategies

Given the negative outlook, we recommend buying GBP/USD put options to profit from or protect against further declines. The pair has already fallen to 1.3483, and momentum could push it towards the next key support level at around 1.3350 in the coming weeks. Implied volatility in sterling options has risen to a three-month high, indicating increasing uncertainty. This issue is not unique to the UK, as US 30-year yields are also nearing 5%, which strengthens the dollar overall. The Federal Reserve’s slightly hawkish tone last week is contributing to this trend, making long dollar positions appealing against various currencies. This is evident in USD/JPY, which has climbed above 148. The quick rise in “risk-free” rates will likely affect equity markets as well, increasing the discount rate for future earnings and lowering valuations. We should stay cautious and consider defensive strategies, such as buying put options on the FTSE 100 index. If global risk sentiment continues to worsen, UK stocks may be particularly vulnerable due to the pressures on currency and yields. Create your live VT Markets account and start trading now.

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