Pound struggles along with Yield

Pound struggles to move higher against dollar this week, as UK 2 year yield is failing to push higher.

UK short yields are struggling since Friday, as outlook remains clouded. Two forces are at work here.

• Bank of England (BOE) Governor Mark Carney, in his latest speech indicated that BOE is on its way to hike rates at the turn of the year and BOE is much closer to rate hike than many are anticipating, given UK economy is clear path of revival and wages are rising at considerable pace. Given such yields are trying to push higher as rate hike is getting closer.

• On the other hand, UK's Debt Management Office (DMO) has clearly indicated that they will be funding the government with longer tenure borrowing while cutting back on shorter end. Shortage for shorter end bonds would be as much as £ 10 billion. Given such Gilts are in high demand, pushing yields down.

As of now, it is not clear which force will prevail in the short run, given BOE is still about half a year away from a hike.

Pound might struggle in the very short term against dollar, which could see it dropping around 1.54 if resistance around 1.567 holds. Pound is currently trading at 1.56 against dollar.

UK 2 year yield is currently at 0.628%, down about 1% today.