LONDON: Sterling fell against a stronger dollar on Friday, retreating from a three-year high touched earlier this week, as a rout in global bond markets sent yields flying and hurt the pound, while the Bank of England warned of inflation risks.
After rising above $1.42 on Wednesday, the pound touched its lowest since Feb 18 at $1.3890 in London morning trade, before recovering to stand 0.2% lower at $1.3982 by 1557 GMT
Versus the euro, the pound gained 0.1% to 86.80, after hitting a 10-day low of 87.30 pence.
Bank of England Chief Economist Andy Haldane warned on Friday of a risk that inflation will prove difficult to keep under control as the economy recovers from the pandemic.
Analysts also attributed sterling's fall to a sell-off in bond markets.
Benchmark US Treasury yields vaulted to their highest since the pandemic began, driven by the prospect of accelerating growth and inflation that could trigger a faster rise in interest rates than many expect. Gilt yields also rose sharply on Friday.
"The aggressive Cable capitulation has seen macro and leveraged players retreating from an increasingly overbought market," said Jeremy Stretch, head of G10 FX strategy at CIBC Capital Markets, adding that the sterling correction started as the gap between 10-year and 2-year UK gilt yields tightened 2 basis points on Thursday. The pound has strengthened almost 3% this year versus the euro and 2.4% against the dollar as traders expect Britain's speedy vaccine roll-out will help the economy rebound from its biggest contraction in 300 years.
Comments
Comments are closed for this article.