The British pound edged slightly lower on Tuesday, slipping 0.15% to $1.352 against the U.S. dollar, though it remained close to last month’s three-year highs. It held steady versus the euro at
84.45 pence, as markets awaited a key auction of long-dated UK government bonds and a series of remarks from Bank of England officials.
Investor sentiment is being tugged in multiple directions, balancing concerns over erratic U.S. trade policies with broader unease about the long-term fiscal health of major developed economies. In this environment, long-term government bonds in the U.S., Japan, and the UK have faced heavy selling, pushing yields higher.
UK 30-year gilt yields currently sit at 5.36%—the highest among developed nations—reflecting not optimism about economic growth, but rather mounting worries over the country’s fiscal stability. This has added to volatility in the pound.
Ahead of Tuesday’s £1.25 billion ($1.69 billion) auction of 2063 gilts, yields on 30-year UK bonds dipped to a four-week low of 5.341%, down 7 basis points on the day, modestly outperforming U.S. Treasuries.
Late Monday, BoE Monetary Policy Committee member Catherine Mann remarked that the central bank should revisit its pace of gilt sales. She argued that cutting interest rates may not sufficiently offset the recent surge in long-dated yields.
Strategists at RBC noted that Tuesday’s auction is relatively small, which could support demand. However, they remain cautious on the bond’s long-term appeal due to expectations of additional supply in that segment.
"With UK gilts outperforming across the curve and yields falling, it appears bond vigilantes are lying low," said Kathleen Brooks, research director at XTB. "Markets aren’t anticipating trouble in today’s auction."
Meanwhile, domestic headlines added to uncertainty. Thames Water, the UK's largest water utility, announced that U.S. private equity firm KKR had withdrawn from a multi-billion-pound rescue deal. The news has rekindled fears of potential nationalisation if the company fails to secure new funding. The government has stated it is prepared to step in if necessary.
Focus will now turn to testimony before Parliament from several key Bank of England figures—including Governor Andrew Bailey, Deputy Governor Sarah Breeden, Catherine Mann, and external MPC member Swati Dhingra—scheduled for 0915 GMT.