GBP Struggles Amid Rising Yields and Rate Hike Uncertainty

The British Pound has been struggling against its US counterpart this week, despite rising gilt yields that are normally expected to boost a currency. Sterling has declined to levels not seen in three weeks, with GBP/USD trading just under 1.3500 after reaching a session low of 1.3475.

UK 10-year borrowing costs have risen above 5.20%, their highest since 2008, but this yield increase is more related to supply and debt service than a rate hike. The upcoming September 17 meeting will compound the problem as it combines a rate decision with an announcement on the pace of gilt sales.

Monetary Policy Committee members have hinted at a possible 4% interest rate hike, which would be a significant move. However, most forecasters still expect Bank Rate to remain unchanged through year end.