Sterling Slides as US Yields Hit 19-Year High, Markets Price Further Fed Tightening
The British pound fell against the US dollar on Thursday due to rising US Treasury yields and expectations of further Federal Reserve tightening. The yield on the 10-year US Treasury bond reached a 19-year high of 5.15%, which has led to a 55% probability of two more rate hikes this year, according to the CME FedWatch tool.
The Bank of England's messaging was mixed, with Clare Lombardelli scoring 8.4/10 on the FXS Speechtracker and Swati Dhingra coming in at 3.2/10. The GBP/USD pair remains below its 20-period EMA at 1.3421, with a Relative Strength Index (RSI) of 24.7.
The analysts suggest positioning for continued downside pressure on the GBP/USD pair and recommend deploying bear put spreads to target the year-to-date low of 1.3140. They also advise shorting bond futures or buying put options on long-term Treasury ETFs due to the expected further upward pressure on US yields.
Additionally, the US dollar index (DXY) has reached an eight-week high of 101.32, and traders can capitalize on its climb by buying call options. The division between Bank of England policymakers is likely to spark heavy volatility for the pound.