Comment: Sterling slips from recent trend high in the face of US yield rise

Noram Lithium

18/10/2021 15:08

Oct 18 (Reuters) - Sterling started U.S. trade under pressure, falling 0.12%
to 1.3730, but cable's current weakness may be short-lived given parallel
UK-U.S. near-term rate expectations.
    Sterling bulls have been respecting thin cloud resistance by 1.3780. A rise
above there would put 1.3831's 50% Fib of 1.4250-1.3412, the 2021 range, in
sharper focus, with further gains likely if the BoE maintains its current
hawkish tone.
    The dollar bid is predicated on rising U.S. Treasury yields amid heightened
U.S. inflation, Fed taper and rate outlooks, while GBP/USD appeared vulnerable
to profit-taking after its nearly 2% rise in October as traders pulled forward
expectations of a BoE 25bp rate hike in Dec. 2021  BOEWATCH .
    Monday's selloff in front-end short-sterling futures  urn:newsml:reuters.com:*:nL1N2RE0KA was
cementing expectations of up to 100 bp in BoE hikes by December 2022  0#FSS: .
    Hawkish comments over the weekend from BoE Governor Andrew Bailey, who still
sees rising inflation as temporary but also views rising energy prices as a
threat, gave the spur to rate hike expectations  urn:newsml:reuters.com:*:nL1N2RD07B. 
    However, if UK inflation does turn out to be transitory, the risk remains
that overly aggressive rate hikes could snuff out the UK recovery.
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 (Paul Spirgel is a Reuters market analyst. The views expressed are his own)
 ((Paul.Spirgel@thomsonreuters.com))