The British pound advanced 0.26% to trade at 1.3641 against the dollar on Thursday, extending a move that took it above the 1.36 level for the first time in months. The gain followed a 0.55% session rise on Wednesday, which pushed GBP/USD to 1.3610 after clearing resistance between 1.3529 and 1.3560. Over the trailing month, sterling has added 1.98%, while its 12-month gain stands at 1.66%.
The rally in cable reflects broader dollar weakness rather than a sterling-specific catalyst. The U.S. Treasury announced on Wednesday that it would at least double the size of liquidity-supporting buyback operations for longer-dated Treasury securities, increasing the per-operation ceiling from $2 billion to at least $4 billion from September 9 through November 4. The move, outlined in a statement dated August 19, contributed to a drop in 10- and 30-year Treasury yields and a broad-based easing of financial conditions. The U.S. Dollar Index fell to an eleven-week low near 98.70, while the euro and Swiss franc gained to 1.1711 and 1.36, respectively.
Sterling’s domestic data provided little support. UK headline consumer prices rose to 2.9% in July from 2.6% in June, matching forecasts, while core inflation held steady at 2.6%. Services inflation eased, and producer input prices declined sharply, indicating disinflationary pressures ahead. The pound showed minimal reaction to the data, underscoring its limited role in driving the recent move.
Rate pricing remains a key vulnerability for sterling. Markets are currently assigning roughly 55 basis points of Bank of England tightening from a base rate of 3.75%—the highest among G10 currencies after Australia’s 4.35%. However, private-sector regular pay growth slowed to 2.8% year over year in July, the weakest pace since late 2020. The deceleration in wage growth, combined with softening services inflation, reduces the urgency for further BOE hikes. The central bank’s June policy decision was split 7–2 in favor of holding rates at 3.75%, with two members voting for a hike to 4%.
The near-term outlook for GBP/USD hinges on upcoming data. UK retail sales and flash PMI figures, due at 14:45 BST, will precede U.S. flash PMIs. A stronger-than-expected UK print against softer U.S. data could push cable through 1.3650 and expose the 1.3700 level. Conversely, weak UK retail sales alongside resilient U.S. data may bring 1.3500 back into view.
Analysts caution that much of the dovish dollar repricing is already reflected in current levels. For the dollar to weaken further, additional deterioration in the U.S. macro backdrop would likely be required beyond the four consecutive soft prints observed in recent weeks—including a 0.6% contraction in July retail sales, a surprise decline in nonfarm payrolls, and softer inflation readings. The fragility of sterling’s advance underscores the currency’s reliance on external factors rather than domestic fundamentals.
