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Sterling rises as BoE policymaker says get ready for early rate increase

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* Graphic: World FX rates in 2020

* Graphic: Trade-weighted sterling since Brexit vote (Adds quotes, updates headline and rates)

LONDON, Oct 11 (Reuters) - Sterling rose against both the euro and the dollar after the Bank of England said inflation levels in Britain were concerning and urged Britons, in interviews published over the weekend, to get ready for earlier interest rate increases.

Bank of England policymaker Michael Saunders said households must brace for "significantly earlier" interest rate rises. He added investors were right to bet on faster increases in borrowing costs with consumer price inflation heading above 4%, the Telegraph newspaper said on Saturday.

The bank's governor, Andrew Bailey, said in an interview to The Yorkshire Post newspaper that inflation running above the BoE's target of 2.0% was very concerning and it had to be managed to prevent it from becoming permanently embedded.

Interest rate futures traded on the CME showed November contracts were pricing in as much as a 20% probability of a rate hike next month compared to 12% last week while December futures were pricing in a 45% probability of a rate increase by then.

"Sterling traders have spent the morning pricing in the commentary from BoE officials over the weekend," said Simon Harvey, senior FX Market analysts at Monex Europe.

"We see the pound's gains from here as limited due to concerns over the underlying level of economic activity."

Sterling rose 0.1% versus the dollar to $1.3635 at 0823 GMT, after briefly touching a two-week high. Versus the euro, it rose 0.2% to 84.79 pence, not far from a two-month high touched in earlier morning trade.

The 2-year gilt yield touched 0.603% shortly after the market opened, its highest since January 2020, up 7 basis points on the day.

Reporting by Joice Alves, editing by Ed Osmond

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