Rising gilt yields are not saving the British Pound

Sterling's strength faded on Wednesday, trading just below 1.3500, down 1.5% from its August peak near 1.3700. This marked its weakest point in three weeks. The decline was accompanied by a surge in UK 10-year gilt yields, breaking the 5.20% barrier, the highest since 2008. This trend contradicted the usual expectation that higher yields would attract foreign investors to Sterling.

The September Monetary Policy Committee meeting further complicated the situation, as it would disclose the extent of gilt sales alongside the interest rate decision. The market's unwillingness to purchase long-term gilts, coupled with the upcoming announcement of increased supply, pushed yields higher. The Bank of England's annual budget, scheduled for October 28, may exacerbate the fiscal concerns, as the new finance minister has pledged to maintain current borrowing levels.

Meanwhile, the British pound faced pressure from rising oil prices due to ongoing Middle East tensions, with crude oil trading above $90.00. Despite this, the upcoming release of the Institute for Supply Management's Purchasing Managers Index (PMI) at 14:00 GMT could provide a more favorable outlook for the currency.