Sterling edges up off four-week low as traders assess impact of bond selloff

By Joice Alves

LONDON (Reuters) -Sterling edged up off a four-week low on Wednesday as traders paused to assess the impact of a two-day bond market rout that has highlighted Britain's fiscal challenges as the government prepares its annual budget.

Long-dated government borrowing costs across the world, including Britain's 30-year bond yields, touched multiyear highs on Wednesday on concerns over the fiscal health of some of the biggest economies, although a degree of calm was returning after a sharp selloff.

Britain's 30-year borrowing costs rose to their highest levels since 1998, potentially adding to the pressure on sterling, which had already dropped more than 1% on Tuesday. 

But the currency was last up 0.17% at $1.3416 against the dollar, after touching its lowest level since August 6 in early trading.

Against the euro, it edged 0.06% higher to 86.86 pence, remaining close to an almost four-week low touched against the single currency on Tuesday.

"We expect it will be hard (for sterling) to find support if the bond market selloff continues," said Kathleen Brooks, research director XTB.

ING FX strategist Francesco Pesole instead said he doesn't expect the pound to react much on any further gilt moves alone.

"The reaction to (the) gilts selloff looks a bit overblown," he said.

Investors are now waiting to hear more about finance minister Rachel Reeves's autumn budget, due on November 26. She is expected to raise taxes in order to remain on course for her fiscal targets, potentially adding to the challenge of speeding up the economy.

"Expectations for the Budget are so gloomy, there is scope for upside surprises," said Laurence Mutkin, Director & Head, EMEA Rates Strategy at BMO.

A survey published on Wednesday showed a surge in new business helped Britain's services sector grow by the most in more than a year last month as concerns about U.S. tariffs eased, but firms remained worried about the prospect of tax rises at home.

Prime Minister Keir Starmer's reshuffle of his top team of advisers on Monday also renewed the focus on fiscal challenges given the UK's high levels of borrowing and slow growth.

(Reporting by Joice Alves; Editing by Hugh Lawson)