LONDON, June 30, Reuters The pound edged higher on Friday and was on track for a monthly gain of about 1.5, boosted by a sharp rise in British bond yields across the month.

Yields have jumped in June as data has shown that Britain39;s inflation problem is more deeply entrenched than elsewhere, pushing the Bank of England to hike interest rates by an outsized 50 basis points last week.

Sterling was last up 0.12 at 1.263, and was set for a monthly gain of 1.49.

The euro fell 0.3 against the pound, meanwhile. It was set for a very small monthly decline, after sliding almost 2 versus the pound in May.

Higher yields tend to boost a country39;s currency by making fixed income investments there look more attractive. That dynamic was in play again on Friday, said Lee Hardman, currency analyst at lender MUFG.

Probably it39;s the usual driver in terms of UK yields are moving higher again today, more so than elsewhere, Hardman said.

Yields on both the 10year and twoyear UK government bonds were up about 6 basis points on Friday, to 4.44 and 5.29 respectively.

The twoyear yield, which is particularly sensitive to interest rate expectations, has jumped by just under a percentage point in June. That39;s the biggest rise since the chaos unleashed by the UK39;s fiscal announcement in September.

The Bank of England raised interest rates to 5 last week but traders who bet on the future path of borrowing costs think they39;re likely to rise to around 6.2 by early next year….