Pound Sterling Holds Firm as US Treasury Bond Buybacks Weigh on Dollar

The British pound held steady against a weaker U.S. dollar on Friday, as markets continued to process the U.S. Treasury's move to expand its bond buyback program, a development seen as supporting risk sentiment.

As of 5:14 AM ET, the GBP/USD pair traded 0.32% higher at 1.3672, while the EUR/USD was up 0.27% at 1.1709, according to data from Investing.com.

Treasury Action Fuels Weaker Dollar

The primary driver for currency markets this week was the U.S. Treasury's announcement on Wednesday to increase the scale of its bond repurchases. According to Chris Turner, Global Head of Markets at ING, the move should be viewed as a "signaling operation" intended to manage the rise in long-term U.S. bond yields, rather than a sign of market distress.

In a note on Friday, Turner argued that if the Treasury becomes more active in capping long-end rates, "this is a dollar-negative, pro-risk story." He added that this environment could benefit high-beta commodity currencies and emerging market currencies. The U.S. Dollar Index (DXY) found support around the 98.65/70 level, with ING noting it "may now struggle to get back above 99.00."

Sterling Positioned for Potential Gains

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For the pound, analysts see potential for further upside driven by market positioning. Strategists at UBS highlighted that data from the Commodity Futures Trading Commission (CFTC) shows a significant net-short position in sterling. This suggests that any positive news on UK fiscal credibility could trigger a short-covering rally that outpaces what fundamentals might otherwise suggest.

• UBS Forecast: The bank projects GBP/USD will reach 1.40 by December 2026 and 1.41 in the first half of 2027.
• Euro Outlook: The euro consolidated near key resistance. ING analysis suggested EUR/USD would likely trade in a narrow range of 1.1670 to 1.1710 before a potential move higher, supported by a weaker dollar narrative.

Broader Market Context

The dollar's softness also reflects a wider market theme of repricing Federal Reserve policy expectations. Softer inflation and employment data have diminished the case for further interest rate hikes. Analysts at UBS wrote that "long dollar positions remain at risk of a reversal" if the market fully prices out the possibility of additional Fed tightening.

Market participants are now looking ahead to the release of S&P PMI data from the U.S. and the Eurozone later on Friday. Domestically, news flow in the United Kingdom was reported to be quiet as Parliament is in its summer recess.