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By Sujata Rao
LONDON, Dec 23 (Reuters) - Sterling vaulted above $1.34 for
the first time in a month on Thursday and also scaled a
one-month high against the euro, surfing a general uptick in
risk sentiment and a steep rise in Britain's short-dated
government bond yields.
UK businesses posted the weakest quarterly growth since the
three months to April when lockdowns were in effect, the
Confederation of British Industry (CBI) said.
But that was offset by an announcement from AstraZeneca
that a three-dose course of COVID-19 vaccine was
effective against Omicron. Rivals Pfizer-BioNTech and Moderna,
also say a third shot of their vaccines works against Omicron.
Coming after reports that Omicron patients are less likely
to need hospitalisation, the news raised hopes that governments
may not need to widen restrictions on activities.
Britain also cut its COVID-19 self-isolation period to seven
days from 10 days for those who test negative two days in a row.
.
By 1530 GMT, the pound was up 0.5% against the dollar at
$1.34190, just off a one-month peak of $1.34370 hit earlier
. Against the euro, it was up 0.55% at 84.360 pence
having risen as high as 84.16 pence.
Analysts pointed to steep rises in UK gilt yields,
outstripping German and U.S. peers, with 5- and 10-year yields
up five basis points (bps) on the day as markets moved to factor
a 100 bps rise in British interest rates by end-2022
.
Nomura strategist Jordan Rochester noted especially the
pick-up in UK "real" or inflation-adjusted yields. British
5-year real yields jumped 14 bps on the day, bringing gains
since mid-December to around 60 bps. U.S. and German
counterparts have flatlined in this period, Refinitiv data shows
"If you're looking for why sterling remains bid, it's the
continued pickup in real yields," Rochester said, though he
suggested the moves were down to Christmas volumes "rather than
the start of a new uptrend" with the positive impulse from UK
rate hikes already largely priced in.
The pound has risen 1.6% and 1.2% against the dollar and
euro respectively since Dec. 15, a day before the Bank of
England hiked interest rates.
Scotiabank analysts pointed out 2-year gilt yields were up
30 bps in the past 10 days, while the Bund equivalent had risen
less than five bps. That's seen the spread between the two
approach the widest since August 2019 <GB2DE2.
"As we had expected, the move in yields is pulling
euro/sterling toward the 84 pence level," they said.
(Reporting by Sujata Rao Editing by Bernadette Baum and Mark
Potter)
