LONDON – Sterling fell versus a strengthening dollar on Tuesday after US treasury yields jumped to the highest in almost three months following hawkish US Federal Reserve remarks.
US yields have surged since last week when the Federal Reserve announced it may start tapering stimulus as soon as November and flagged interest rate increases may follow sooner than expected.
More remarks from the Fed Chair Jerome Powell on Monday, prepared for delivery to the Senate Banking Committee later in the day, pushed the UK 10-year gilt yield to its highest since the pandemic started, while the US 30-year treasury yield surged to highest level since July in early London trading.
Sterling fell 0.3% to $1.3671 at 08:30 GMT. Versus the euro it edged 0.1% lower at 85.48 pence.
Powell said that the central bank would move against unchecked inflation if needed as higher prices and hiring difficulties seen as the US economy reopens could prove “more enduring than anticipated”.
“It is all about US Treasuries today as yields climb higher in early trading, placing the whole G10 under pressure,” said Simon Harvey, senior FX market analyst at Monex Europe according to Reuters.
The US dollar against a basket of currencies jumped to its highest since Aug. 20.
“Amid this backdrop, hawkish commentary from Governor Bailey has been a blunt instrument,” Harvey added.
Sterling jumped last week following the Bank of England’s hawkish tone on interest rates and its pandemic-era government bond-buying scheme. Governor Andrew Bailey reiterated on Monday that he and other members of the Monetary Policy Committee saw a growing case to raise interest rates.
But analysts said those gains may have been overdone given the other challenges facing the British economy.
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