Sterling steadies as dollar rally stalls amid Treasury yields near 2007 highs

The British pound steadied against the dollar on Thursday, climbing slightly to 1.3248 GBP/USD after a day of mixed forex movement, as a stretched dollar rally encountered resistance from elevated U.S. Treasury yields and cautious expectations for further Federal Reserve rate hikes. The U.S. 10-year Treasury yield remained near its highest level since 2007, having surged by around 15 basis points on Wednesday, reflecting stronger-than-expected U.S. business activity data that reinforced bets the central bank may keep borrowing costs elevated longer than anticipated. Meanwhile, the euro also faced pressure, dropping below 1.1400 EUR/USD on Wednesday before edging up slightly to 1.1394 on Thursday, with technical support near June intraday lows of 1.1325–1.1330. Analysts at ING FX strategist Francesco Pesole warned that the dollar’s rally was becoming stretched, with a potential correction expected toward the 100–100.5 range in the coming weeks if further data disappoints. The dollar index (DXY) breached 101.0, though traders remained wary of a broader pullback, particularly as USD/JPY remained a downside risk channel with potential for further gains toward 160. Investors continued to monitor scheduled remarks by Federal Reserve officials Williams, Barkin, Hammack, and Paulson, who could provide clarity on whether an October rate hike remains on the table. Separately, eurozone services sector activity surged to new highs, offering some support to the single currency amid broader uncertainty over U.S.-China relations. The People’s Bank of China’s second consecutive weaker yuan fix also weighed on market sentiment, while U.S. President Donald Trump’s upcoming summit with Chinese President Xi Jinping added geopolitical volatility to the forex landscape. Sterling’s gains were largely driven by dollar weakness rather than domestic catalysts, as investors awaited further clarity on monetary policy and economic fundamentals.