Sterling ticks up from three-week low as yen rallies and oil cools

The pound rose slightly on Thursday after hitting a three-week ​low the previous day, getting a lift from ​a sharp rally in the yen ‌that ​knocked the U.S. dollar as well as a calming of oil prices. Sterling climbed 0.1% to $1.35, having fallen to a three-week low of $1.348 in the previous session ‌as the safe-haven dollar rose following renewed strikes between the U.S. and Iran.

Yet a jump in the yen — which analysts said reflected rising Bank of Japan rate hike bets, although they remained alert to the risk of official intervention — caused the ‌dollar to fall across the board on Thursday. Meanwhile oil prices slipped from a more than one-month high after ‌a calmer day in the Middle East, helping Brent crude fall 1% to $95 a barrel.

The pound was little changed against the euro, with the euro zone's currency buying 85.93 pence. A selloff in global bond markets which pushed Britain's benchmark 10-year yield to its highest level ⁠since 2007 on ​Wednesday abated on Thursday, ⁠with the yield down more than 3 basis points.

The jump in yields, a proxy for government borrowing costs, has eroded some of the ⁠government's so-called headroom against its fiscal rules, a headache for new Prime Minister Andy Burnham as his finance minister John Healey ​prepares to present a budget in October. Markets have raised their bets on rate hikes around the world as ⁠the U.S.-Iran conflict has again pushed up energy prices, with traders now fully pricing in a Bank of England rate hike by the end ⁠of ​the year and another by March.

Mark Haefele, UBS Global Wealth Management chief investment officer, said sterling looks attractive in a note to clients on Thursday. "We... continue to view sterling positively, supported by improving confidence in UK ⁠assets, a more fiscally credible political backdrop, and the potential for investors to reduce still substantial short positions."

He added that ⁠higher yields on UK ⁠bonds also boost the appeal of the pound. Sterling has risen very slightly this year against the dollar, while the euro has fallen more than 1%, supported by some signs ‌that the UK ‌economy is faring better than expected.