The pound dipped against the dollar in European trading, falling 0.8% to $1.2370, as concerns around economic data have seen bonds yields — the interest rates on debt — surge.

These costs on government borrowing in the UK, US and Europe have risen as data has stoked fears of stubborn inflation, which has led to concerns around how many times major central banks will be able to cut interest rates this year.

In the US, the Institute for Supply Management’s (ISM) monthly survey of the country’s services sector, released on Tuesday, showed prices climbed to the highest level since last January. Meanwhile, US job vacancies rose by more than expected, hitting a six-month high.

Market focus will now turn to the US Federal Reserve’s minutes from its last meeting of 2024, with investors looking for any indicators on the central bank’s interest rate path this year.

Closely watched US non-farm payrolls data is also due out on Friday.

As expectations grow of higher for longer rate environment, the yield on the 10-year US Treasury has risen to 4.67%, which is its highest level in eight months.

The yield on 30-year UK government bonds, known as gilts, are hovering near their highest point since 1998, trading at 5.24%.

“In the UK, there is also particular concern brewing about stagflation taking hold, given that inflation has been creeping up and pay growth is still hot, while the economy has been stagnating,” said Streeter. “There are concerns this may limit the interest rate reductions this year.”

The pound was flat against the euro (GBPEUR=X), trading at €1.2058 on Wednesday morning.