The British pound is extending the sell-off that began yesterday and remains significantly lower among the majors. There was no underlying catalyst behind the selloff. He was technical.

Around midday yesterday, the UK 10Y yield made a new cycle high which added to the bearish momentum in the bond market. The British pound has started to fall along with bond prices in a move that looks like a reaction to the announcement of the UK’s “mini budget” on September 23, 2022.

It was much more violent at the time because inflation was still very high and the market didn’t like the announcement of the biggest tax cuts in forty years. This time the bond market is starting to feel uneasy about the ongoing stagflation in the UK as growth remains weak and core inflation sticky.

The thinking in the FX market could be that rising yields will put further pressure on growth and the BoE may have to keep rates higher for longer and eventually cut more aggressively in a recession. It doesn’t help that GBP has been one of the best in 2024 and the positioning is still net long.