GBP Vulnerable Amid High Gilt Ownership and Budget Uncertainty

Rabobank's Senior FX Strategist Jane Foley warns that the British Pound (GBP) is vulnerable due to its high share of gilts held by foreign investors and upcoming budget talks. With a significant proportion of UK gilts owned by foreigners, Foley expects GBP weakness and a higher EUR/GBP exchange rate over the coming months.

The Office for Budget Responsibility (OBR) notes that around 30% of UK gilts are held by foreign investors. Since 2022, the Bank of England (BoE) has been reducing its gilt holdings, making foreign investors more reactive to domestic news and increasing the likelihood of bond market jitters spilling over into the exchange rate.

Foley emphasizes that the GBP does not have the same advantage as other G10 countries in terms of foreign ownership. The high proportion of UK government debt owned by foreigners increases the risk of gilt market instability affecting the pound.