Pound Slides as UK Finances Rattle Bond Markets

Sterling remained flat around $1.363 after falling 0.8% on Wednesday as concerns over Britain’s fiscal position pushed gilt yields higher following welfare reform U-turns. Asian markets were subdued ahead of US non-farm payrolls data, with Wall Street futures slightly higher and Vietnam’s stock index rising 0.5% after a trade deal with the US. Investors are focused on US labour data and services PMI figures due later.

Equities

The FTSE 100 slipped 0.1% on Wednesday, while the FTSE 250 fell 1.3%, dragged lower by political unease around the UK government’s finances. Traders reacted to finance minister Rachel Reeves’ visibly emotional appearance in Parliament and the government’s decision to drop parts of a welfare reform bill that were expected to cut future spending. The pound dropped more than 1% and UK government bond prices saw their steepest daily fall since October 2022.

Shares in housebuilders were hit hard. Bellway dropped 8% and Taylor Wimpey fell 4%, pulling the household goods and home construction index down 5.9%. Bytes Technology lost 31.5% after warning that its first-half operating profit would fall short. Greggs shed 15.1% after it said a summer heatwave had put off customers and could weigh on annual profit.

BP rose 3.2% and Shell added 1.7% as the sector tracked firmer oil prices. Mining stocks were also stronger. Glencore rose 5.1%, supported by higher metal prices and the launch of a $1 billion share buyback. Antofagasta gained 4.2% and Ferrexpo added 3.6%. Spectris rose 4.3% after agreeing to a £4.7 billion takeover from KKR, beating out a rival bid from Advent.

In the US, the S&P 500 rose 0.47% to a record high of 6,227.42, while the Nasdaq added 0.94% to close at 20,393.13. The Dow Jones slipped 0.02%. Gains followed the announcement of a new US-Vietnam trade deal and renewed buying of major tech stocks. Nvidia, Apple and Tesla helped push the Nasdaq higher.

Tesla rose 5% despite reporting a drop in Q2 vehicle deliveries. Analysts had expected worse, which helped the stock recover some ground after recent losses. Tesla shares remain down over 20% this year.

Centene fell 40%, its lowest level in eight years, after scrapping its 2025 earnings forecast. The US health insurer said it now expects significantly less revenue from its marketplace health insurance plans.

Forex & Commodities

The US dollar rose against most major currencies on Wednesday as markets prepared for the June non-farm payrolls report and digested weaker-than-expected labour data. The greenback gained 0.15% against the Japanese yen to 143.64 on Thursday morning and rose 0.06% against the Swiss franc to 0.7915, halting several days of losses. The euro slipped 0.08% to $1.1797 against the dollar but climbed 0.9% against the British pound. The dollar index rose 0.15% to 96.786, snapping a nine-day losing streak.

Sterling fell 0.79% to $1.3634, hitting a one-week low. The drop followed a sharp selloff in UK government bonds amid political pressure on the Labour government and speculation over the future of Chancellor Rachel Reeves. Analysts pointed to a “crisis of confidence” as gilt yields jumped, reflecting investor concern over fiscal stability.

Gold prices were steady in early Thursday trading ahead of the US payrolls report. Spot gold was flat at $3,357.96 per ounce. The metal is consolidating within the $3,320 to $3,360 range, with investors reluctant to take new positions until key labour and services data is released. Silver was up 0.2% at $36.66, while platinum and palladium fell 1.1% and 1.3%, respectively.

Oil prices eased after Wednesday’s gains. Brent crude fell 0.77% to $68.58 a barrel and West Texas Intermediate declined 0.76% to $66.94. This followed news that OPEC+ is likely to raise output by 411,000 barrels per day at its upcoming meeting. Meanwhile, US crude inventories unexpectedly rose by 3.8 million barrels last week and gasoline demand slipped to 8.6 million barrels per day, raising concerns about consumption during the peak driving season.