British Pound gains as US Dollar softens on Treasury bond buybacks

• GBP/USD rises as US Treasury intervention capped bond yields, weighing on the US Dollar.
• US-Iran geopolitical tensions intensify within the critical Strait of Hormuz.
• Higher UK inflation matched forecasts, slightly reducing market expectations for another Bank of England rate hike.

GBP/USD extends its gains for the second successive day, trading around 1.3630 during the European hours on Thursday. The pair appreciates as the US Dollar (USD) faces challenges, driven by the decision of the US Treasury Department to stabilize domestic bond markets.

US Treasury announced plans to curb surging yields and alleviate market liquidity concerns by doubling its buyback operations for long-dated securities maturing in 10 to 30 years. This increased intervention aims to cap long-term borrowing costs and enhance overall global US Dollar liquidity, which could ultimately exert downside pressure on the currency moving forward.

UBS highlights that the recent shift in US Treasury policy is rooted in domestic economic and political concerns. The bank argues that “higher yields impact the US affordability crisis and debt service costs, making them a political focus,” with rising borrowing costs increasingly shaping the policy agenda. In this context, UBS sees the latest measures as an attempt “to counter the (presumably unintended) consequences for bond markets of other policies like the Gulf war and tariffs,” suggesting that officials are now moving to mitigate the knock-on effects of earlier decisions on the long end of the curve.

However, the upside of the GBP/USD pair could be restrained as the Greenback may receive safe-haven support from geopolitical friction in the Strait of Hormuz, where tensions between the US and Iran have intensified. While former President Donald Trump noted that oil transit continues and expressed openness to negotiations with Tehran, elevated risk aversion continues to favor the US currency.

Traders carefully digested the latest economic prints from the United Kingdom (UK), balancing sticky inflation metrics against a cooling jobs backdrop. Annual consumer price growth picked up to 2.9% in July from June's 2.6% reading, precisely matching consensus estimates. Meanwhile, core inflation, which strips out volatile items, held steady at 2.6%.

Moreover, analysts at Danske Bank note that UK price pressures picked up in July, with headline CPI "rising to 2.9% y/y (cons: 2.9%, prior: 2.6%), mainly driven by the 13% increase in the Ofgem energy price cap from 1 July." They highlight that the outturn was "broadly as expected," underscoring the significant role of regulated energy costs in the latest inflation print.

Following the data release, market participants subtly scaled back their expectations for another Bank of England interest rate hike later this year, weighing stable core pressures against the broader economic outlook.

Technical Analysis: GBP/USD rises amid prevailing bullish bias

In the daily chart, GBP/USD trades at 1.3630, extending its advance above both the nine-day and 50-day Exponential Moving Averages (EMAs), which underpin a clear bullish near-term bias. The 14-day Relative Strength Index (RSI) at 69.8 hovers just below overbought territory, suggesting strong but potentially stretched upside momentum, while the FXS Fed Sentiment Index around 134.61 hints at a still-supportive macro backdrop for the pair.

On the downside, initial support emerges at the nine-day EMA near 1.3546, with a deeper cushion at the 50-day EMA around 1.3437, where buyers would be expected to defend the broader uptrend. As long as GBP/USD holds above these moving average supports, the technical outlook remains constructive, though the elevated RSI warns that any fresh gains could be followed by a consolidation or mild corrective pullback towards these underlying demand zones.

(The technical analysis of this story was written with the help of an AI tool. Know more.)