The British pound traded near a one-week high on Friday, with the GBP/USD pair up 0.32% at 1.3672 as of 05:14 ET, as the U.S. dollar softened following an unscheduled Treasury announcement to expand bond buyback operations.
The move comes after U.S. Treasury Secretary Scott Bessent indicated potential fiscal consolidation measures, including a task force aimed at reducing fraud. Analysts noted the intervention reflects growing concern over elevated longer-dated Treasury yields, with ING’s Global Head of Markets Chris Turner describing it as a signal that higher yields are "firmly on the Treasury's radar."
Turner characterized the Treasury’s actions as a "soft dollar, pro-risk story," distinguishing it from the April 2025 episode of safe-haven flows into the franc, euro, and yen. He added that the dollar index (DXY) is likely to struggle to reclaim levels above 99.00, with support seen around 98.65/70. The euro also strengthened, with EUR/USD gaining 0.27% to 1.1709, though ING expects it to consolidate in a tight range of 1.1670–1.1710 before potential upside toward 1.1790 if resistance at 1.1700 is breached.
UBS strategists Constantin Bolz and Dominic Schnider warned that long-dollar positioning remains vulnerable to a reversal, particularly as market pricing for further Federal Reserve rate hikes fades. They noted that a full removal of rate hike expectations could trigger unwinding of existing long-dollar positions.
The U.S. budget deficit remains near 6%, while the ECB’s Consumer Expectations Survey showed three-year inflation expectations at 3.0% in March, easing slightly to 2.8%. ECB rate hikes through September are already fully priced in by markets. In the UK, thin summer trading conditions persist due to parliamentary recess, with sterling benefiting from cautious optimism ahead of the November budget under Prime Minister Andy Burnham.
CFTC data indicated that GBP net positioning remains heavily short, leaving the currency with a "mechanical tailwind" for short-covering if fiscal credibility signals improve. UBS targets GBP/USD at 1.40 by December 2026 and 1.41 through the first half of 2027, with resistance at 1.38 and initial support at 1.33.
