Sterling looks vulnerable to further downside as it consolidates below 1.36, with bulls on the back foot amid heightened UK fiscal uncertainty, relentlessly rising long-end gilt yields and Middle East ructions lifting oil prices in a sign of persistent global inflation.

Amid subdued end-of-summer trading, cable found support near 1.3525, its recent trend lows.

The dollar strengthened following hawkish Federal Reserve policy expectations spurred by Chair Kevin Warsh's comments at the Jackson Hole Symposium last week. Adding to the dollar bid is the rise in global yields after Japanese yields climbed above 3% for the first time in 30 years. Sterling yields followed suit, rising 7 basis points and ticking a new multi-decade high at 5.26% as traders returned from Monday's UK Bank Holiday.

With oil rising, it seems increasingly likely that elevated inflation expectations globally are likely to persist. That may lift UK second-round inflation expectations, tempering optimism for a near-term recovery in Britain and further exacerbating fiscal concerns, which will add downside pressure to UK assets, including sterling.

Technically, sterling finds initial support at today's 1.3526 low, then 1.3475, the August 13 low, with more significant support at 1.3444-37, the 100-,200- and 50-DMA area. Bulls need a close above 1.3599, the flattening 10-DMA, to stall the mounting bearish outlook.
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(Paul Spirgel is a Reuters market analyst. The views expressed are his own)