British Pound gains as UK Burnham pledges continuation of current Labour policy

Pound Sterling Price Today

The table below shows the percentage change of British Pound (GBP) against listed major currencies today. British Pound was the strongest against the Canadian Dollar.

	USD	EUR	GBP	JPY	CAD	AUD	NZD	CHF
USD		-0.18%	-0.25%	0.05%	0.09%	-0.06%	-0.25%	-0.19%
EUR	0.18%		-0.07%	0.24%	0.26%	0.15%	-0.04%	-0.00%
GBP	0.25%	0.07%		0.32%	0.34%	0.19%	0.00%	0.07%
JPY	-0.05%	-0.24%	-0.32%		0.04%	-0.12%	-0.32%	-0.24%
CAD	-0.09%	-0.26%	-0.34%	-0.04%		-0.15%	-0.35%	-0.30%
AUD	0.06%	-0.15%	-0.19%	0.12%	0.15%		-0.19%	-0.11%
NZD	0.25%	0.04%	0.00%	0.32%	0.35%	0.19%		0.07%
CHF	0.19%	0.00%	-0.07%	0.24%	0.30%	0.11%	-0.07%

The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the British Pound from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent GBP (base)/USD (quote).

No change in the UK’s policies means no fresh boost to interest obligations for the government on fresh debt, which generally happens when the political shift is done between different parties. In the European trade, 10-year UK Gilt Yields have given back their slight gains and are marginally lower to near 4.73%.

“Our plans are consistent with 2024 Labour manifesto,” UK Burnham said.

On the monetary policy front, investors seek fresh cues regarding how long the Bank of England (BoE) will keep interest rates at 3.75%. In the policy announcement this month, the BoE left policy rates steady, with a 7-2 majority. BoE Monetary Policy Committee (MPC) member Megan Greene voted for an interest rate hike, calling it an “insurance against larger second-round inflation effects”.

Meanwhile, the US Dollar trades slightly lower, with investors awaiting the United States (US) Nonfarm Payrolls (NFP) data for June, which will be released on Thursday. Investors will pay close attention to the US NFP data to get fresh cues regarding the Federal Reserve’s (Fed) monetary policy outlook.

According to the CME FedWatch tool, there is an almost 80% chance that the Fed will deliver at least one interest rate hike this year.

UK gilt yields FAQs

What are UK Gilt Yields?

UK Gilt Yields measure the annual return an investor can expect from holding UK government bonds, or Gilts. Like other bonds, Gilts pay interest to holders at regular intervals, the ‘coupon’, followed by the full value of the bond at maturity. The coupon is fixed but the Yield varies as it takes into account changes in the bond's price. For example, a Gilt worth 100 Pounds Sterling might have a coupon of 5.0%. If the Gilt's price were to fall to 98 Pounds, the coupon would still be 5.0%, but the Gilt Yield would rise to 5.102% to reflect the decline in price.

What factors influence the level of Gilt Yields?

Many factors influence Gilt yields, but the main ones are interest rates, the strength of the British economy, the liquidity of the bond market and the value of the Pound Sterling. Rising inflation will generally weaken Gilt prices and lead to higher Gilt yields because Gilts are long-term investments susceptible to inflation, which erodes their value. Higher interest rates impact existing Gilt yields because newly-issued Gilts will carry a higher, more attractive coupon. Liquidity can be a risk when there is a lack of buyers or sellers due to panic or preference for riskier assets.

How do interest rates impact UK Gilt Yields?

Probably the most important factor influencing the level of Gilt yields is interest rates. These are set by the Bank of England (BoE) to ensure price stability. Higher interest rates will raise yields and lower the price of Gilts because new Gilts issued will bear a higher, more attractive coupon, reducing demand for older Gilts, which will see a corresponding decline in price.

How does inflation influence UK Gilt Yields?

Inflation is a key factor affecting Gilt yields as it impacts the value of the principal received by the holder at the end of the term, as well as the relative value of the repayments. Higher inflation deteriorates the value of Gilts over time, reflected in a higher yield (lower price). The opposite is true of lower inflation. In rare cases of deflation, a Gilt may rise in price – represented by a negative yield.

What is the relationship between Gilt Yields and the Pound Sterling?

Foreign holders of Gilts are exposed to exchange-rate risk since Gilts are denominated in Pound Sterling. If the currency strengthens investors will realize a higher return and vice versa if it weakens. In addition, Gilt yields are highly correlated to the Pound Sterling. This is because yields are a reflection of interest rates and interest rate expectations, a key driver of Pound Sterling. Higher interest rates, raise the coupon on newly-issued Gilts, attracting more global investors. Since they are priced in Pounds, this increases demand for Pound Sterling.