The dollar edged higher on Monday as last week’s spike in U.S. bond yields supported the currency, with sterling — battered by political headwinds — the biggest loser.
Sterling was down 0.7 percent at $1.3087, dropping away from an eight-day peak of $1.3229 scaled on Friday on better-than-expected British industry data.
That is eight short of the number needed to trigger a leadership contest, through which May could be forced from office.
The newspaper report lifted implied currency volatility on sterling — market gauges to predict price movements for currencies — from recent lows even as FX options market data showed positions were evenly balanced.
Currency strategists predict further pain for the pound.
Morgan Stanley strategists said in a note that sterling was trading 2 percent above levels that 10-year differentials between UK and U.S. yields suggested, while positioning data showed leveraged investors were still net long sterling assets.
The dollar index against a basket of six major currencies was 0.25 percent higher at 94.617, following a 6-basis-point rise in long-term U.S. Treasury yields on Friday.
The index ended the previous week with a loss of 0.6 percent amid investor disappointment that a proposed U.S. corporate tax cut could be delayed to 2019.
