GBP/USD drops to 1.3125 as UK gilt yields surge on fiscal fears

GBP/USD has fallen 0.5% to 1.3125 as UK 10-year gilt yields jumped over 10 basis points to 4.54%, reflecting mounting concerns over the UK's fiscal position. The pound's weakness extends across the board, with EUR/GBP surging 0.5% to 0.8860, marking its highest level since April 2023. Markets are pricing in increased fiscal risks under Chancellor Reeves and PM Starmer's economic policies, creating a challenging environment for sterling. The sharp rise in gilt yields indicates investors are demanding higher returns to hold UK government debt, traditionally a bearish signal for the currency. Technical indicators show GBP/USD breaking below key support at 1.3150, with immediate downside targets at 1.3100 and 1.3050. The deteriorating fiscal outlook and rising borrowing costs suggest continued pressure on sterling, particularly if gilt yields maintain their upward trajectory.