British Pound holds gains against a weak US Dollar despite downbeat UK Retail Sales

• GBP/USD stands tall, just below six-month highs, at 1.3660, on track for a 0.8% weekly rally.
• UK Retail Sales contracted 0.5% in July, in line with market expectations.
• The US Dollar remains on the defensive, weighed by the US Treasury's plan to boost buybacks of long-term securities.

The British Pound (GBP) trades firm against the US Dollar (USD) on Friday, with the GBP/USD pair pushing against six-month highs in the 1.3660 area at the time of writing, on track for a 0.8% weekly rally. UK Retail Sales confirmed that consumption fell in July, but the pair maintains its bullish tone intact, as the US Dollar remains on its back foot, hammered by the Treasury’s bond buyback plans.

Data released by National Statistics on Friday revealed that retail consumption contracted 0.5% in the UK in July, in line with market expectations, following a  0.7% increase in June. Year-over-year, sales increased at a 1.6% pace, down from 3.8% in June and below the consensus 2.2%.

The decline has been broad-based, as excluding fuel, sales of all other products fell 0.9% in July, reversing the 0.9% increase posted in June.

Beyond that, Public Sector Net Borrowing increased by GBP 1.8 billion in July, below June’s GBP 12.78 billion but exceeding the market expectations of GBP 0.3 billion.

Treasury buybacks keep weighing on the USD

The US Dollar remains on the defensive as US Treasury Secretary Scott Bessent affirmed on Thursday that bond buybacks might increase beyond the $4 billion per operation announced one day before.

On Wednesday, the US Treasury disclosed a plan to double liquidity to repurchase long-term securities, in a move aimed at stemming the yield rally. The return for the 30-year Treasury Bond had reached 19-year highs earlier this week, with investors increasingly reluctant to buy US Government Bonds, amid concerns about escalating debt, which topped 40 trillion earlier in the week.

Strategists at BBH see the this plan as a debt-management swap ”under which the Treasury “buys and retires older, less liquid bonds (off-the-run) in favor of new, more liquid debt (on-the-run) issued through its regular auction.” BBH experts, however, warn that that investors come to believe that “the Treasury is managing yields rather than liquidity,” which, in their opinion “undermines US fiscal credibility and is a drag on USD.”