British Pound Rebounds on Tuesday Amid Stronger British Bond Yields

The British pound climbed higher in the London session on Tuesday, snapping a three-day fall following some short-covering by investors along with a rally to a seven-year high in the 10-year British government bond yields.

At press time, GBP has gained over 0.1% against the US Dollar, as the UK 10-year government bond yields rose by 1.96%, its highest level since December 2015.

However, the market outlook remains on a cautious tone, with Sterling a few points away from its November 2020 low of 1.2973, which got refreshed last week.

Commenting on its price action against the dollar, an economist at ING expects the GBP/USD pair to record more declines over the week, explaining:

“Cable is currently trading around 1.30: breaks below this level have proven to be very short-lived in previous instances (March-April), but we think that a supported dollar and the lack of major drivers for Sterling this week could support a more decisive depreciation in GBP/USD.”

Market Attention for Clues on British Pound Shifts to Bailey’s Thursday Speech

Despite the recent bullish yields recorded over the past few days, investors remain hesitant about placing aggressive bets behind the GBP, as the Bank of England (BoE) plans to go the way of its global counterparts and increase interest rates to tackle rising inflation. Recent data shows that British consumer price inflation jumped by 7% in March, its highest single-month increase in 30 years.

That said, market participants have slightly dampened expectations for how much the BoE could raise interest rates over the year. Market focus has turned to BoE Governor Andrew Bailey, who should deliver a speech on Thursday, even as hedge funds reportedly increase their short bets on the Sterling to the highest point since 2022.

Meanwhile, the pound also recorded a decent move against the euro today, climbing by 0.1% to 82.94.