Pound Weakens As European Shares Fall On Inflation Concerns

The pound dropped against its key counterparts in the European session on Wednesday, as a sell-off in government bonds fueled concerns about inflation and potential reduction in stimulus by the U.S. Federal Reserve.

European shares fell as a spike in bond yields pressured tech stocks.

Rising prices for crude oil and natural gas added to worries about inflationary pressures and tightening of monetary policy.

Traders await U.S. ADP private payrolls data due later in the day for more clues about the Fed's policy outlook.

Market participants hope that the Fed would begin to reduce its asset purchases as soon as November and rising inflation and signs of improvement in the labor market.

The pound declined to a 2-day low of 1.3544 against the greenback, from a high of 1.3632 seen at 5 pm ET. The pound is likely to challenge support around the 1.33 region

The pound edged down to 151.01 against the yen and 1.2593 against the franc, off its early 8-day highs of 152.16 and 1.2661, respectively. The pound is poised to challenge support around 147.00 against the yen and 1.24 against the franc.

In contrast, the pound advanced to a session's high of 0.8503 against the euro from an early low of 0.8527. On the upside, 0.84 is likely seen as its next resistance level.

Looking ahead, U.S. ADP private payrolls data for September is set for release at 8:15 am ET.