* British 10-year gilt yields hit highest since 2008
* Markets price in quarter-point BOE rate increase by
year-end
* Sterling about 1% below late-August six-month high against
U.S. dollar
September 1 (Reuters) – Sterling slipped on Tuesday as
investors returned from a long holiday weekend to a global bond
selloff that pushed British government borrowing costs to their
highest since 2008 and bolstered the dollar.
The pound dipped by 0.07% to 1.35395 against a
broadly stronger U.S. currency after a renewed flare-up in
U.S.-Iran hostilities that revived inflation concerns.
Hawkish remarks from Federal Reserve Chair Jerome Powell on
Friday had also prompted traders to raise expectations of an
increase to U.S. interest rates.
A stronger dollar has pushed sterling about 1% below the
six-month high of $1.36745 hit late last month, with the focus
turning to parliament’s return this week as investors look for
clues on how new Prime Minister Andy Burnham will fund his plans
ahead of the October budget.
Britain’s strained public finances remain a key concern,
with gilt yields among the highest in the developed world and
markets sensitive to any changes in the fiscal outlook.
British 10-year gilt yields rose to their
highest since June 2008 at 5.2554% as oil prices topped $92 a
barrel.
The Bank of England is widely expected to leave interest
rates unchanged at 3.75% this month, though markets continue to
price in a quarter-point increase by the end of the year.
Governor Andrew Bailey said on Friday that he saw little
evidence that the recent jump in energy prices was generating
lasting inflation pressures.
“The Bank of England is uncertain how transitory the price
shock will be,” said Commerzbank FX analyst Michael Pfister.
British retailers raised prices by the most in more than two
years last month as higher energy prices pushed up the cost of
some processed food and the AI boom raised the cost of consumer
electronics, data showed on Monday.
Economic data on Tuesday painted a mixed picture. Britain’s
manufacturing activity in August expanded at its slowest pace
since March while BOE data showed that lenders approved the
fewest mortgages in July since January 2024. The economy remains
resilient, however, with GDP rising 0.3% in the latest month and
0.4% over the latest three-month period.
