(Corrects paragraphs 3 and 5 to say 30-year gilt yields were near their highest levels since the late 1990s, not hit that milestone on Monday)
By Stefano Rebaudo
(Reuters) -Sterling rose against a weakening dollar on Monday but was on track for a 3-day falling streak versus the euro, as investors awaited U.S. economic data later this week amid renewed concerns over Britain’s fiscal outlook.
Weakness in the pound has coincided with a decline in British bank shares and an uptick in benchmark Gilt yields on Friday.
“The UK is in a fiscal bind,” said Stephen Jen, CEO of Eurizon Capital, recalling that the 30-year gilts yields were around their highest levels since the late-1990s while fiscal spending remains at a Maastricht-busting level of 4.4% of gross domestic product.
“In our view, its fiscal revenues are about to move to the bad side of the Laffer Curve, higher tax rates will probably start to lead to lower tax collection,” he added.
The yield on the 30-year gilt hit 5.646% on Monday. It reached 5.649% in early April, its highest since 1998.
The pound was up 0.18% to $1.3528 and was down 0.14% to 86.65 pence per euro.
The greenback hit a 5-week low on Monday as investors looked ahead to a raft of U.S. labour market data this week that could affect expectations for the Federal Reserve’s easing path.
Investors will closely watch the questioning of Bank of England Monetary Policy Committee members by the Treasury Committee later this week, looking for guidance on future rate cuts or possible changes to the central bank’s quantitative tightening program.
Parliament returns from its summer recess this week, and an announcement on the date of the Autumn Budget could follow.
“If the UK government wants the Bank of England to be able to react, by cutting rates, to a fiscally tight budget, it will have to announce the budget date this week,” said Chris Turner, head of forex strategy at ING, recalling that the Office for Budget Responsibility requires 10 weeks’ notice for the budget, and the November BoE meeting is held on the 6th.
(Reporting by Stefano Rebaudo; editing by Toby Chopra)
