Pound Slides As UK Bond Yield Soars

(RTTNews) - The British pound weakened against other major currencies in the European session on Friday, as long-dated UK bond yields rise sharply in response to increasing public sector borrowings in August.

The 30-year UK gilt yields jumped to more than 1 percent to almost 5.50 percent.

Following a bigger-than-expected rise in UK public borrowing and policy announcement by the Bank of England that exposed the difficulty for policymakers in striking a balance between inflation and growth, also led the GBP to trade lower.

UK government borrowing increased more than expected and also exceeded the official estimate in August, adding pressure on Chancellor Rachel Reeves ahead of the November budget.

Public sector net borrowing increased GBP 3.5 billion from the last year to GBP 18.0 billion in August, the Office for National Statistics said Friday.

This was the highest August borrowing in five years and exceeded the official estimate of GBP 12.5 billion. Borrowing was also larger than economists' forecast of GBP 12.8 billion.

In other economic news, data from the Office for National Statistics showed that UK retail sales increased for the third straight month in August. Retail sales volume increased 0.5 percent in August from a month ago. This followed a similar revised 0.5 percent increase seen in July and outpaced economists' forecast of 0.4 percent gain. Moreover, this was the third consecutive increase.

On a yearly basis, retail sales logged a growth of 0.7 percent after rising 0.8 percent in the previous month.

In the European trading today, the pound fell to nearly a 1-1/2-month low of 0.8729 against the euro and a 1-1/2-month low of 1.0711 against the Swiss franc, from early highs of 0.8690 and 1.0744, respectively. If the pound extends its downtrend, it is likely to find support around 0.88 against the euro and 1.06 against the franc.

Against the U.S. dollar and the yen, the pound dropped to nearly a 2-week low of 1.3483 and an 8-day low of 199.37 from early highs of 1.3560 and 200.60, respectively. The pound may test support near 1.33 against the greenback and 198.00 against the yen.

Looking ahead, Canada retail sales data for July and U.S. Baker Hughes oil rig count data are slated for release in the New York session.