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The pound dipped against the dollar in early European trading, falling 0.2% to $1.2450, 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.

Susannah Streeter, head of money and markets at Hargreaves Lansdown (HL.L), said: "It’s expected to be robust, indicating persistent strength of the US economy. Although such a show of strength might be seen as good news, it’s leading to concerns that the Fed will go even slower on interest rate cuts."

The Fed has already warned there would likely be only two rate cuts this year, down from the four forecast in September. Streeter said: "Speculation is brewing that there this could be reduced to just one if price pressures persist".

As expectations grow of higher for longer rate environment, the yield on the 10-year US Treasury (^TNX) 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.

Gold prices edged higher on Wednesday morning, amid concerns around persistent inflation and the Fed's rate path.

The spot price rose 0.2% to $2,653.21 per ounce, while gold futures inched 0.1% higher to $2,668 per ounce.

While rising rates on bonds typically weighs on gold prices, as a non-yielding asset, investors look to the precious metal in times of uncertainty.

Read more: Will gold rally to fresh highs this year? Have your say

In addition, the People's Bank of China adding to its gold reserves last month indicates central bank demand for the precious metal is still strong.

ING head of commodities strategy Warren Patterson and commodities strategist Ewa Manthey said in a note on Wednesday that China had added to its gold reserves for a second month in December.

"Gold held by the People’s Bank of China rose to 73.29 million troy ounces in December, from 72.96 million in the previous month," they said. "The central bank resumed adding to its gold reserves in November after a six-month pause. The purchase by the central bank comes even with gold prices near record levels."