The pound edged higher on Thursday after falling to a three-week low in the previous session, supported by a stronger yen and easing oil prices.
Sterling gained 0.1% to $1.35 after touching $1.348 on Wednesday, its weakest level in three weeks. The move came as renewed tensions between the United States and Iran boosted demand for the safe-haven dollar.
The dollar came under broader pressure on Thursday as the yen strengthened sharply. Analysts attributed the yen’s rally to growing expectations that the Bank of Japan could raise interest rates, while investors remained alert to the possibility of intervention by Japanese authorities.
Oil prices also eased after reaching a more than one month high, following a relatively calmer period in the Middle East. Brent crude fell about 1% to around $95 a barrel.
Against the euro, sterling was largely unchanged, with the euro trading at 85.93 pence.
Pressure on global bond markets also eased on Thursday after a major selloff pushed Britain’s 10-year government bond yield to its highest level since 2008 a day earlier. The yield subsequently fell by more than three basis points.
Higher government bond yields, which reflect increased borrowing costs, have reduced some of the government’s financial headroom under its fiscal rules. The development adds pressure on Prime Minister Andy Burnham and Chancellor John Healey ahead of the October 28 budget.
Markets have raised expectations for interest-rate increases globally as the conflict involving Iran pushes energy prices higher. Traders are now fully pricing in one Bank of England rate hike by the end of the year and another by March, according to Reuters.
Mark Haefele, chief investment officer at UBS Global Wealth Management, described sterling as an attractive investment option.
“We remain optimistic about the pound, as confidence in UK assets strengthens, the country’s fiscal outlook improves, and investors may unwind their sizeable bets against sterling,” he said in a note to clients.
Haefele added that elevated UK bond yields were another factor supporting the appeal of the pound.
Sterling is slightly higher against the dollar this year, while the euro has lost more than 1%, with recent economic data pointing to stronger than expected performance in the UK.
Goodness Anunobi
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