Sterling fell 0.12% to about 1.3225 against the Dollar in European trading on Thursday, with GBP/USD pressured as US Treasury yields climbed and markets leaned towards further Federal Reserve tightening. The 10-year US Treasury yield hit 5.15%, a 19-year high, while the Dollar also firmed: the DXY was up 0.15% near 101.32, its strongest level in eight weeks. CME FedWatch put the probability of Fed rate hikes at almost 55% for both remaining policy meetings this year. Separately, Fed’s Williams recorded 7.2/10 on the FXS Speechtracker versus a 6.2/10 historic average, and the FXS Fed Sentiment Index edged down 0.18 points to 148.63, still above the neutral 100 level.
Bank of England messaging stayed split. Clare Lombardelli scored 8.4/10 on FXS Speechtracker, matching her historic average, while Swati Dhingra came in at 3.2/10, also in line with her norm. On the charts, GBP/USD remained below its 20-period EMA at 1.3421, with RSI (14) around 24.7; resistance sits near 1.3421 and downside focus remains on the YTD low at 1.3140.
GBP/USD Downside Trades and Treasury Yield Strategy
We advise derivative traders to position for continued downside pressure on the GBP/USD pair in the coming weeks. With the pair trading at 1.3225 and sitting well below its 20-day exponential moving average of 1.3421, deploying bear put spreads is an effective way to target the year-to-date low of 1.3140. Because the Relative Strength Index is deeply oversold at 24.7, we suggest using options rather than short futures to limit risk against sudden, short-lived relief rallies.
The dramatic rise in 10-year US Treasury yields to a 19-year high of 5.15% offers a prime opportunity to short bond futures or buy put options on long-term Treasury ETFs. This yield surge is heavily supported by the CME FedWatch tool, which now shows a 55% chance of two more rate hikes this year. Looking back at the historical tightening cycles of 1994 and 2006, yields often continue to climb until the Federal Reserve officially pauses, meaning we should expect further upward pressure on US yields.
Dollar Strength, BOE Division, and Volatility Trades
We also recommend buying call options on the US Dollar Index (DXY) to capitalize on its climb to an eight-week high of 101.32. Meanwhile, the stark division between Bank of England policymakers—with hawkish wage concerns on one side and weak labor market data on the other—is bound to spark heavy volatility for the Pound. Traders can exploit this uncertainty by buying GBP/USD straddles, allowing us to profit from sharp exchange rate swings as the market struggles to price in these conflicting central bank paths.
