Pound edges higher as UK bond yields hit seven-year high

Against the US dollar, the pound edged 0.1 per cent higher to $1.3029 as UK 10-year government bond yields rose to the highest since December 2015 at 1.96 per cent

The pound edged higher today, breaking a three-day falling streak, as investors covered some of their short positions and as 10-year British government bond yields rose to their highest in more than seven years.

Against the US dollar, the pound edged 0.1 per cent higher to $1.3029 as UK 10-year government bond yields rose to the highest since December 2015 at 1.96 per cent.

But the outlook remained cautious, with the pound well within striking distance of a November 2020 low of $1.2973 hit last week.

Even as British yields have extended gains in recent days, investors have become increasingly unsure whether the Bank of England (BoE) will follow its global counterparts in raising interest rates aggressively to curb inflation.

Data last week showed British consumer price inflation jumping in March to 7 per cent, its highest in three decades, but money markets have slightly dialled down expectations for how much the BoE will raise interest rates in the rest of the year.

Market focus is on a speech from BoE governor Andrew Bailey on Thursday, even as data showed hedge funds have increased their short bets on the pound to their highest levels since the start of the year.

Against the euro, the pound edged 0.1 per cent higher to 82.94 pence.

European currencies weren't helped by the latest fighting in Ukraine, which said Russia had started an anticipated new offensive in the east of the country.

Elsewhere, the Australian dollar rose 0.3% from Monday's one-month low and was at $0.737, given some support by minutes published Tuesday from the Reserve Bank of Australia's April policy meeting, which suggested the central bank was edging closer to raising interest rates for the first time in more than a decade due to accelerating inflation.