Pound Trades Higher Amid UK Bond Market Frenzy. Forecast as of 04.09.2025
In the fall of 2022, Liz Truss’s government lost credibility and was forced to resign. Will history repeat itself three years later with Keir Starmer and Rachel Reeves? Let’s discuss this topic and make a trading plan for the GBPUSD pair.
The article covers the following subjects:
Major Takeaways
- Eroding confidence is causing the pound to fall.
- UK bond yields are at their highest level since 1998.
- Investors fear a repeat of 2022.
- Long positions can be considered if the GBPUSD pair rises above 1.35.
Weekly Fundamental Forecast for Pound Sterling
Great Britain gave the world the Beatles, railways, and modern tennis. In 2025, it risks dragging the global economy into a debt crisis. Yields on 30-year UK bonds have jumped to their highest levels since 1998 amid growing fears that Rachel Reeves will not be able to plug the budget gap without slowing GDP growth. The panic led to a sell-off of bonds and temporarily pushed the GBPUSD pair below 1.335.
UK 30-Year Bond Yield
Source: Bloomberg.
In the realm of politics, a fundamental principle states that if one identifies an issue, it is advisable to refrain from further exacerbating the situation. The Labour Party has historically criticized the Conservatives, who were previously in power, for their spending and budget deficits. Now, the responsibility to address these issues lies with the Conservatives. Rachel Reeves is seeking to raise £35 billion by November, a goal that has become increasingly challenging in light of the recent rise in borrowing costs. Since March, these costs have increased by £8 billion.
In general, an increase in government debt does not typically result in a debt crisis, provided that investors have confidence in the government’s financial stability. At present, the market is exhibiting signs of uncertainty exacerbated by higher inflation in the UK compared to the G7 countries, the Bank of England’s reluctance to ease monetary policy, and the Treasury’s reduction in the issuance of 30-year bonds in favor of shorter-term securities. As a result, yields have soared and GBPUSD quotes have plummeted.
Central Banks’ Interest Rates
Source: Bloomberg.
According to BoE Governor Andrew Bailey, there is no need to make a mountain out of a molehill. Indeed, long-term bond yields are rising, but this is due to lower demand for these securities at auctions. As a result, the government has reduced the issuance. It seems that the Bank of England is not going to interfere in the events taking place in the debt market, and this further exacerbates the situation.
Almost three years ago, the sell-off of bonds and the pound triggered the resignation of Liz Truss’s government. History is repeating itself, although Keir Starmer is unlikely to leave his post as prime minister. Rather, it will be Rachel Reeves who does so.
A feeling of déjà vu is stifling GBPUSD bulls. The pair was ready to resume its upward trend, but soaring debt yields brought it back down to earth.
The market is overly emotional now. Bond market behavior has been affected by the political crisis in France, worries about Germany’s fiscal spending, and the Federal Appeals Court ruling that Donald Trump’s tariffs are illegal. As soon as Treasury yields fell due to weak US labor market statistics, the yield on British securities plunged.
Weekly GBPUSD Trading Plan
Markets are turning their attention back to divergence and varying paces of monetary policy shifts. Meanwhile, the British pound may outperform the US dollar. If GBPUSD quotes settle above 1.341 and break through the resistance level of 1.35, long positions can be opened.
This forecast is based on the analysis of fundamental factors, including official statements from financial institutions and regulators, various geopolitical and economic developments, and statistical data. Historical market data are also considered.
Price chart of GBPUSD in real time mode
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