BoE dovishness hurting Pound amid sovereign bond sell off

Sterling underperformed most of its G10 peers in the last couple of weeks of summer, though the moves were relatively modest given a lack of major market-moving news in Britain.

The general sell off in sovereign bonds is also affecting gilts, and memories of the Liz Truss debacle in 2022 are still fresh - indeed, the 30-year yield has surged well past those levels and last week’s broke to 28-year highs.

As the only central bank that appears to have more-or-less ruled out a hike in September, the Bank of England's dovishness is also not helping the pound. Chief economist Pill struck a hawkish note, though we do not think that his views are shared by the majority of the committee.

One of the few positive factors remaining for sterling is the modestly positive tone of UK economic reports. Activity data - including the second-quarter GDP figures - continues to largely surprise to the upside, despite the ongoing cooling in labour market conditions and the jump in borrowing costs.

Key events to monitor this week include Friday’s July GDP report and Tuesday’s Treasury Select Committee testimonies from Governor Bailey.