Sterling Holds Firm as Oil Surge and US Yield Hikes Reignite Hawkish Bets

Despite rising US Treasury yields and oil prices, sterling held firm on Monday. The GBP/USD pair hovered around 1.3250, up 0.18% from last week's close.

The increase in Treasury yields, with the 10-year note climbing more than 10 basis points to 5.261%, has sparked concerns of further Federal Reserve tightening. Historically, this level of yield inversion has preceded recessions in over 80% of cases since 1960.

Meanwhile, West Texas Intermediate (WTI) oil prices surged more than 3% to $95.41 a barrel after President Donald Trump's rejection of Iran's proposal to reopen the Strait of Hormuz and his warning that attacks could resume after the US midterm elections.

The British Pound's resilience in the face of these economic headwinds has been attributed to hawkish interest rate expectations, with Bank of England policymakers contemplating further rate hikes due to rising energy prices. Traders are advised to be cautious of long-term long positions on GBP/USD and prepare for heightened volatility as opposing central bank forces collide.