US JOBS SURGE IMPACTS GLOBAL MARKETS: POUND TUMBLES AND UK GILT YIELDS SPIKE

The sterling tumbled in relation to the US dollar, while yields on gilts faced renewed strain as fresh data underscored the enduring robustness of the US economy.

The most recent figures from the US labour market document an uptick in employment with 256,000 positions added in December, a pace that exceeded November's and surpassed the forecasts of analysts, as reported by City AM.

Contrary to projections by specialists who anticipated a static rate, unemployment edged down to 4.1 percent, defying expectations of holding steady at 4.2 percent.

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"The report pointed to the labour market having remained solid as 2024 drew to a close," commented Michael Brown, senior research strategist at Pepperstone. The persistent vigour of America's economic performance is likely to persuade policymakers at the US Federal Reserve that prudence is warranted in reducing interest rates.

Post-release of these statistics, the pound declined by 0.8 percent against the dollar to $1.22, marking its lowest since November 2023. Market projections regarding the trajectory of rate cuts have moderated, mirroring the ongoing strength of the economic landscape as well as the potential inflationary push from Donald Trump’s trade tariffs.

Now, traders are not forecasting a rate cut by the Fed until October, having previously predicted a reduction as soon as June earlier in the week.

Fluctuations in US interest rates hold repercussions across the globe and recent times have seen sovereign debt markets especially affected, with mounting anticipation among investors for heightened global interest rates.

Neil Birrell, Chief Investment Officer at Premier Miton Investors, has suggested that the latest figures will do little to alleviate the pressure on government bonds. "The jump in bond yields looks set to continue," he stated.

The UK is particularly vulnerable to these market fluctuations due to the significant proportion of UK government debt held by international investors. Following the release of these figures, the cost of UK government debt increased across all maturity profiles, adding to an already challenging week.

The yield on the benchmark 10-year gilt rose by 0.07 per cent to 4.88 per cent, reaching its highest level since 2008, while the yield on the 30-year gilt increased by 0.09 per cent to 5.47 per cent. Seema Shah, Chief Global Strategist at Principal Asset Management, warned: "The peak for yields has not yet been reached, suggesting additional stresses that several markets, especially the UK, can ill afford."

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2025-01-10T15:05:53Z