Sterling fell more than 1% versus dollar and euro as a steep rise in US Treasury bond yields and fears for the economic impact of a shortage of gas in Britain overshadowed Bank of England comments about a possible interest rate rise.

US yields have surged since last week's Federal Reserve meeting where it said it may start tapering stimulus as soon as November and flagged interest rate increases could follow sooner than expected.

Tuesday's remarks from Fed Chair Jerome Powell signalled nervousness about inflation, and pushed US 10-year yields above 1.54% to the highest since mid June and also led markets to price higher future inflation.

Lee Evans, Head of FX Trading & Strategy with Bank of Ireland, said, "The Pound had been the best performing currency so far this year but most of that performance came at the beginning of the year when the UK was driving a swift vaccination rollout and the uncertainty surrounding Brexit receded following the deal agreed late last year.

"In recent weeks however, the UK has seen a number of supply-related issues across the economy with queues at petrol stations just the latest area of concern. Despite the Bank of England highlighting the potential for interest rates to rise at their meeting last week, currency markets have become increasingly concerned that the UK economy could face 'stagflation' i.e. high inflation and low growth in the coming quarters.

He said, "For Irish businesses, the stability of Euro/Sterling for much of this year has provided some relief while the operational impact of the post-Brexit and Covid-19, environments has come to the fore. The relative calm in recent months, compared with recent years, could well turn out to be the ‘eye in the storm’ for Sterling volatility."