The British Pound slides again as UK government bonds sell off

Britain's 30-year gilt yield went above 6% on Thursday for the first time since 1998, and GBP/USD fell to its lowest since late June. Bank of England (BoE) external member Mann said in a speech the same day that UK financial conditions aren't tight enough. The pair is on track for a third straight weekly loss, trading just under 1.3200.

By Mann's reading, a 6% gilt yield is inflation risk, not tight money

Mann said the rise in UK market borrowing costs since the US-Iran war began reflects investors expecting more inflation, and possibly a premium for uncertainty over BoE policy. Neither makes money tighter once inflation is counted, so she argued the BoE has to raise the UK's Bank Rate from 3.75% to keep its credibility. Markets already price as many as four increases by next summer.

Ten-year gilt yields reached their highest since July 2007 on Thursday, two days after the government sold new 10-year debt at the highest yield for that maturity since 1999. Chancellor Healey presents his first budget later in October.

Higher gilt yields haven't helped GBP/USD, because investors who expect more inflation sell the bonds and the currency together. Mann traced part of the uncertainty to the BoE's response to the war in March, which she said investors read as a central bank waiting, and the BoE has held at every meeting since.

US payrolls on Friday, then Mann again on Tuesday

Nothing from the UK is scheduled on Friday, so the event for GBP/USD is US Nonfarm Payrolls (NFP) at 12:30 GMT, forecast at 90K after 162K in August. Unemployment is forecast at 4.1%, and average hourly earnings at 3.2% YoY from 3.1%. Mann speaks again on Tuesday at 08:40 GMT.

A strong count could hit GBP/USD twice, through the Dollar and through gilts, which rose on Thursday after US Treasury yields did. Fed Chair Warsh has dropped the practice of signalling the next move in advance, which leaves a jobs report as the nearest thing to a signal before the October 28 decision.

The Pound's levels and lean

Resistance: 1.3250 capped Thursday's bounce from the first leg lower. No daily close has come above 1.3300 since the September 23 drop, though Wednesday's high went just through it.

Support: Thursday's low, just under 1.3200, is the lowest since late June. 1.3150, near the late-June lows, comes next, then 1.3100.

Bias: The lean is short while 1.3250 caps on a closing basis, with 1.3150 the first objective and 1.3100 the second. The daily Stochastic Relative Strength Index (Stoch RSI) is near 9 and has been below 20 for about three weeks, so a bounce toward 1.3250 may come first without changing the call. A daily close above 1.3300 ends it.

GBP/USD daily chart