Sterling Takes Hit as Hawkish Fed Widens Rate Gap

Sterling took a hit on Monday as investors reacted to last week's hawkish Federal Reserve rate hike, which widened the interest-rate gap between the US and UK. The GBP/USD pair fell about 0.17% to 1.3371, unable to sustain Friday's rebound from its lowest level since July 30 at 1.1335.

Short positions among non-commercial traders have risen by a notable 12%, indicating a souring of institutional sentiment towards the pound. With spot prices below the critical 100-day Simple Moving Average, analysts warn of further downward pressure on GBP/USD in the coming weeks.

Historically, when the pair drops below this moving average under similar macroeconomic pressures, it often experiences a slide of 2% to 3% within thirty days. To capitalize on this trend, derivatives traders are advised to consider buying out-of-the-money put options with expiration dates in late October or setting up bear put spreads.

The Fed's rate hike has made the US Dollar more attractive than the British Pound, exacerbating downward pressure on GBP/USD. As energy prices continue to rise, major central banks face growing pressure to tighten policy, further weighing on sterling.