Sterling steadies after weak U.S. payrolls offset pressure from elevated U.K. gilt yields

Sterling traded close to recent levels on Monday as currency markets balanced weaker U.S. employment data against persistent pressure from elevated U.K. government bond yields. Reports from Vantage Markets, Sucden Financial and Investing.com highlighted the competing forces shaping GBP/USD at the start of the week.

GBP/USD had rebounded from a three-month low after U.S. nonfarm payrolls rose by only 29,000 in September, well below expectations. The weaker labor-market reading reduced the perceived likelihood of an immediate Federal Reserve rate increase and temporarily softened support for the dollar.

The pound’s domestic backdrop remains more difficult. U.K. 30-year gilt yields recently moved above 6%, a level not seen since the late 1990s, reflecting concerns about inflation, fiscal conditions and the path of Bank of England policy. High yields can support a currency through interest-rate differentials, but they can also become a negative signal when investors interpret them as evidence of fiscal or inflation risk.

That tension has kept sterling from generating a sustained move higher. Vantage Markets noted that the pound’s recovery was driven more by the U.S. payroll miss than by an improvement in U.K. fundamentals, while Sucden’s daily foreign-exchange report also emphasized the importance of shifting U.S. rate expectations across major currency pairs.

British equities were modestly firmer during the session, according to Investing.com, while sterling traded softer against the dollar at points in European hours. The mixed performance reflects the fact that lower expectations for U.S. tightening are supportive for risk assets but do not remove the domestic pressures facing the U.K. bond and currency markets.

For GBP/USD, the near-term direction will depend on whether softer U.S. data can keep Fed expectations contained and whether U.K. gilt yields stabilize. A renewed rise in British borrowing costs driven by fiscal concerns could weigh on the pound even if the dollar loses some support from the U.S. rates outlook.