Pound Sterling extends decline amid surging UK Bond yields

• The Pound Sterling struggles near an almost four-week low against the US Dollar amid a risk-off market mood.

• A sharp increase in long-dated Bond yields has been observed worldwide.

• Investors await key US JOLTS Job Openings data for July.

The Pound Sterling (GBP) extends losses and trades cautiously near an almost four-week low around 1.3370 against the US Dollar (USD) during the European trading session on Wednesday. The GBP/USD pair faces selling pressure as the British currency underperforms its peers, following a sharp sell-off in United Kingdom (UK) gilts. The 30-year UK gilt yields surge to near 5.72%, the highest level seen since 1998.

A sharp downtrend has been observed in long-dated bonds across the globe, indicating fears among financial market participants about mounting government debt borrowings. Market experts believe that soaring Bond yields suggest that investors expect governments to be unwilling to address piling fiscal deficit issues.

"I think at this stage, there's a lack of confidence in markets that the government is willing to address effectively the scale of the budget deficit and the speed of debt buildup," analysts at National Australia Bank said, Reuters reported.

Market experts also believe that uncertainty surrounding the Autumn Budget is contributing to a significant increase in UK gilt yields. The UK government is likely to announce spending cuts or raise taxes, or both, to offset the impact of welfare spending announced in July.

Daily digest market movers: Pound Sterling weakens against US Dollar

A significant selling pressure in the GBP/USD pair is also driven by strength in the US Dollar, following higher bond yields-driven risk-off sentiment. At the time of writing, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, holds onto Tuesday’s gains near 98.40.

This week, the major trigger for the US Dollar will be the Nonfarm Payrolls (NFP) data for August, which will be released on Friday. Investors will pay close attention to the US NFP data as it will influence market expectations for the Federal Reserve’s (Fed) monetary policy outlook.

According to the CME FedWatch tool, there is an almost 92% chance that the Fed will cut interest rates by 25 basis points (bps) in the September policy meeting.

Lately, Federal Open Market Committee (FOMC) members also supported the need for monetary policy adjustments, citing downside labor market risks.

In Wednesday’s session, investors will focus on the US JOLTS Job Openings data for July, which will be published at 14:00 GMT. US employers are expected to have posted fresh 7.4 million jobs, almost in line with the prior reading of 7.44 million.

On the political front, a US appeals court has ruled against President Donald Trump’s tariffs, citing a majority of them as “illegal” and accusing Trump of wrongfully invoking the emergency law. Meanwhile, Trump has announced that he will move to the Supreme Court to keep tariffs in place.

On Tuesday, the US ISM reported that the Manufacturing Purchasing Managers’ Index (PMI) contracted for the sixth time in a row. The Manufacturing PMI came in higher at 48.7 from 48.0 in July, but missed estimates of 49.0. A figure below the 50.0 threshold is considered a contraction in business activity.

Technical Analysis: Pound Sterling trades below 1.3400

The Pound Sterling trades below 1.3400 against the US Dollar on Wednesday. The near-term trend of the GBP/USD pair has turned bearish as it declines below the 20-day Exponential Moving Average (EMA), which trades around 1.3463.

The 14-day Relative Strength Index (RSI) slides to near 40.00. A fresh bearish momentum would emerge if the RSI breaks below the this level.

Looking down, the August 1 low of 1.3140 will act as a key support zone. On the upside, the August 14 high near 1.3600 will act as a key barrier.