The pound has finally cracked.
It was able to ignore the run up in gilt yields for a time but we may have hit some kind of breaking point now. UK 10s are up 16 bps to 4.51%, which is the highest since Nov 2023.
The pound didn’t care until it did…in the past few minutes.
GBP/USD 10 mins
What I worry about is that Treasuries could also blow up. There is a strong consensus (and with good reason) that if we get a Congressional sweep in either direction it will lead to even-larger US deficits — whether that’s due to more spending or tax cuts. The US is already running deficits at 7% of GDP and Paul Tudor-Jones last week was highlighting that the Trump tax cuts need to expire.
Within that, today’s US data also highlighted a healthy US economy and argue that the Fed doesn’t need to cut as much and might even be facing new inflationary pressures, particularly if oil prices rebound.
Finally, I’m cautious of reading too much into any of these moves as it’s month-end and we’re just days away from the US election. For most market participants — including me — this is not a time to be making big bets, or any bets at all.