The volatility in the bond market has eased, the pound has stabilized, but the outlook remains uncertain

According to the Zhitong Finance APP, this week has seen the most volatile fluctuations in the British pound in months. As investors' concerns about the UK's fiscal situation and government control capabilities have intensified, along with the impact on the bond market, the exchange rate of the pound showed a fluctuating consolidation trend on Thursday.

As of the time of writing, the exchange rate of the pound against the US dollar has slightly risen to 1.3434 dollars, marking three consecutive weeks of decline; the exchange rate of the pound against the euro also remained stable at 86.67 pence per euro.

Affected by the broader environment of major global economies selling off long-term bonds, the yield on UK 30-year government bonds soared to its highest level since 1998 earlier this week.

Typically, rising government bond yields would support the local currency. However, the increase in the UK's borrowing costs is driven by market concerns over inflation prospects rather than optimistic expectations for the UK's long-term economic growth, which has put pressure on the pound.

Bank of England Governor Andrew Bailey stated on Wednesday that the UK will continue to cut interest rates, but the uncertainty surrounding the pace of rate cuts has significantly increased.

Bailey reiterated his position after the rate cut in August during a hearing with the Treasury Committee of the House of Commons, noting, "Currently, there are clearly more questions about when and at what speed we will proceed with further rate cuts."

Derivatives market data shows that traders are almost certain that the Bank of England will announce a rate cut at the meeting on September 18, but the market's expectations for the subsequent rate cut path remain unclear.

XTB Research Director Kathleen Brooks analyzed that "the market currently believes the probability of a rate cut in November is only 18%, down from 67% a month ago. Therefore, UK government bond yields may reverse their recent upward trend, but we still expect that for some time to come, UK government bond yields will remain higher than those of other major economies."

She further stated, "Considering that the market may continue to face uncertainty before the November budget announcement, we believe the pound's exchange rate peaked at 1.38 dollars in July and may consolidate below 1.35 dollars in the short term."

UK Chancellor of the Exchequer Rachel Reeves will announce the autumn budget on November 26. Reeves is currently under pressure to maintain government fiscal stability and has pledged to strictly control spending to help curb inflation and reduce borrowing costs.

The concerns of bond investors have not yet eased. The UK's current borrowing costs are the highest among the G7 developed economies: the yield on UK 10-year government bonds is 4.74%, while the yield on US 10-year government bonds during the same period is 4.2%, and Japan, with its low-yield economy, has a 10-year government bond yield of only 1.6%