We have been bearish of GBP/USD since October in articles on this blog and we have seen a big fall from 1.3400 to 1.2355 as of the time of writing this article. Despite the big fall, we see far more downside to come - we have extended our downside target to 1.1650.

You can read our previous article on the GBP Click Here to View

When we reviewed market forecasts for the Year Ahead 2025 the majority were bullish on the GBP this was based mostly on the view the Bank Of England would be slow to lower rates compared to other major economies. We have argued in the past that the Bank of England will cut interest rates more than the market expects but even if they don't (which now looks likely) the GBP is going down as the economy is in such a mess and high interest rates will slow a stagnant economy and send it into recession.

GBP No Support from Interest Rates

Here is a view we read yesterday and it's wrong in our view: “Relatively firm UK yields should be providing the GBP with a little more support than has been apparent in recent weeks. Even at the short end of the curve, 1Y swap spreads have narrowed notably since November while the pound has retained a soft undertone against the generally firm USD.” ( SCOTIABANK) High yields won't support the GBP...

Bond Yields Up GBP Down

“The British Pound is dumped and bond yields are rocketing: we are seeing a repeat of the Liz Truss-inspired market ructions. A massive sell-off strikes the British Pound in midweek trade, and all signs point to anxieties over the UK's rising debt as being the culprit.” (Pound Sterling Live)

Debts rising at the same time the economy is slowing means the government may need to do another tax hike as the debt repayment costs soar which will hit economic growth when the economy is already struggling. The government borrowed £2BN from the market on Tuesday, to be repaid over 30 years, and ended up paying the highest interest rate on the debt since 1998!

Markets are "One of the biggest red flags in macro markets - and a sign of fiscal un-anchoring - is yields up and currency down. This is happening again in the UK (the last proper time we saw this was Q4 '22... after 'that' Budget). Looks ominous," (Viraj Patel, a strategist at Vanda Research.)

What about debt issued over 30 years? We are already at +5%! 

Debts Up Taxes Up Economic Growth Down

In the recent budget, Chancellor Reeves expanded government spending and sought to pay for it via increased borrowing and higher business taxes in the October budget. As a result, economic growth has fallen and looks set to contract in the coming months. Without economic growth, the Treasury won't get the tax revenue it needs to re pay its debts. Reeves will probably have to raise taxes again which risks a negative doom-loop of ever-lower growth and widening budget deficits.

Technical Analysis 

To see our daily analysis of GBP/USD with our exact entries, stops and targets as well as 14 other pairs go to our Members Center  Below are the daily and monthly charts with the key levels to look out for in terms of selling the GBP.