The pound and UK bonds are recovering after suffering a market jolt yesterday that saw the pound drop against the dollar and UK bond yields climb towards 2022 levels.
There is growing concern on the UK’s budget after Labour were forced to water down welfare reforms. Without the support of a large number of rebel Labour MPs, the government u-turned on policy changes that would have saved billions of pounds. With the savings lost, there is speculation over the need for tax rises, and the security of Chancellor Rachel Reeve’s position in the cabinet.
The pound fell from $1.378 to a low of $1.356 yesterday afternoon before the Prime Minister gave his backing to the Chancellor. For now, markets seem to favour Rachel Reeves’ determination to stick to fiscal rules, but with her own party refusing to back welfare savings she will have little room to manoeuvre at the Autumn Budget. Any signs of the Chancellor being removed or the government's ability to cut costs or raise taxes could see further GBP and bond trouble down the line.
After staring the week as low as £2,371, gold has bounced back to £2,454 at the time of writing. A combination of the weaker pound with some general dollar appreciation in the price of gold has given the metal a boost after last week’s sell-off.
National debt remains a concern in the US as well with President Trump’s ‘Big Beautiful Bill’ currently in the US House for a final vote. Democrats and Republicans have expressed concerns the tax cuts and increased spending of the bill will add to America’s ballooning national debt. Having passed the major milestone of $37 trillion last week, reducing the US deficit looks increasingly difficult and could cause similar bond yield spikes if investors feel US debt is on an unsustainable path.
US interest rates are also on the minds of the markets. President Trump once again attacked Fed Chairman Jerome Powell, calling for him to resign immediately for his refusal to cut interest rates. Powell meanwhile has stated that rates have not been cut yet due to the uncertainty created by Trump’s trade tariffs and the potential for them to cause additional inflation.
Next week will mark the deadline of the 90-day pause on global tariffs, and trade deals still seem to be few and far between. The pause could be extended, but if the President decides to reapply the tariffs it could cause significant further volatility.
Silver also continues to perform well, and is back above $37 per ounce again. With the weaker pound, this has pushed silver in GBP to £27.13 so far today. Silver is drawing the attention of big investors looking for a value opportunity while gold remains near all-time highs, and silver’s industrial demand and lower cost remains appealing.
Summer can be a quiet period in financial markets, and is expected to be a period of consolidation for gold in particular, but there is plenty of major events in coming days and weeks that could provide further fuel to 2025’s precious metal rally.
