1.3670: British Pound hits six-month highs as UK PMI beats expectations

• GBP/USD rallies to fresh six-month highs beyond 1.3670, following the release of upbeat business activity figures.
• UK services activity grew at its fastest pace since February, while Manufacturing growth slowed down.
• The US Dollar remains on the defensive amid the US Treasury's plan to boost buybacks of long-term securities.

The British Pound (GBP) rallied to fresh six-month highs against the US Dollar (USD) on Friday, boosted by stronger-than-expected UK business activity data, while the US Dollar remains depressed following the US Treasury’s plan to boost bond buybacks. The GBP/USD pair has breached the 1.3660 level for the first time since February and is trading just above 1.3670 at the time of writing. 

Preliminary data released by S&P Global revealed that July’s UK Services Purchasing Managers Index (PMI) improved to 52.8 from June’s 52.1 reading, against expectations of a slight decline to 51.8. Manufacturing Activity slowed down to 51.5, from 51.9 in the previous month, in line with market expectations, and the Composite PMI ticked up to 52.5 from 52.2 in June, also beating forecasts of a decline to 51.6.

Earlier on the day, National Statistics figures revealed that retail consumption contracted 0.5% in the UK in July, meeting the market's expectations and 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%.

Beyond that, Public Sector Net Borrowing increased by GBP 1.8 billion in July, below June’s GBP12.78 bullion but exceeding the market expectations of GBP0.3 billion.

Bond 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.”