Sterling falls to 10-week low vs dollar as U.S. yields surge

Sterling fell 0.3% to $1.3671 at 0830 GMT. Versus the euro it edged 0.1% lower at 85.48 pence

Pound and U.S. dollar banknotes are seen in this illustration taken January 6, 2020.

Pound and U.S. dollar banknotes are seen in this illustration taken January 6, 2020.

REUTERS/Dado Ruvic/Illustration

LONDON - Sterling fell to an almost 10-week low versus a strengthening dollar on Tuesday after U.S. treasury yields jumped to the highest in almost three months following hawkish U.S. Federal Reserve remarks.

U.S. 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 could follow sooner than expected. 

More remarks from Fed Chair Jerome Powell on Tuesday pushed the UK 10-year gilt yield to its highest since the pandemic started, while the U.S. 30-year treasury yield surged to the highest level since July in London trading. 

The risk-sensitive pound was down 0.7%, exchanging hands at $1.3608 at 11.30 GMT, after hitting its lowest level since mid July at $1.3594.  Versus the euro, it slid 0.6% lower to 85.87 pence. 

Powell said the central bank would move against unchecked inflation if needed as higher prices and hiring difficulties seen as the U.S. economy reopens could prove "more enduring than anticipated".

"It is all about U.S. 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.

"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.

Some petrol station pumps ran dry in British cities and vendors rationed sales as a post-Brexit shortage of truckers triggered panic buying and raised fears that hospitals would be left without doctors and nurses. 

Fed Chair Powell and Treasury Secretary Janet Yellen will testify at a congress hearing in the United States at 1400 GMT. Investors will be also watching a two-day conference by the European Central Bank.

(Reporting by Joice Alves Editing by Robert Birsel and Mark Potter)

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