Sterling firmed back toward the top of its recent elevated range on Tuesday and could head higher still as falling Treasury yields undermine the dollar. GBP/USD was hovering near Monday's 2-month high by 1.2690 as the steady drive lower in U.S. 10-year Treasury yields -- which appear at risk of hitting 4% after touching a low of 4.32% in early NorAm -- continued. For currencies, falling U.S. yields diminish the sting of a looming March 4 tariff deadline. The move also comes in sharp contrast to fears a month ago of a 5% yield. The bull flattening U.S. yield curve has helped sterling by removing some of the interest rate premium from the dollar. In the case of GBP/USD, UK gilt rates have also followed U.S. yields lower, easing fiscal concerns that had been looming over Britain's economy.

Amid the current Trump trade unwind, U.S. and UK 5- and 10-year yields are 50bp lower, near December 2024 levels which saw GBP/USD trade near 1.28. Should yields continue their descent, GBP/USD is likely to regain 1.30, and perhaps make a run at September highs near 1.34.
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(Paul Spirgel is a Reuters market analyst. The views expressed are his own)