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Pound rises as UK catalysts stay quiet and US yields pressure the dollar
Sterling held just above 1.3600 and the move reflects expectations that the US will manage the yield curve via larger long-dated buybacks, after the US ten-year yield slipped below 4.72%.
The British pound held just above 1.3600 into the North American afternoon, only marginally weaker on the day and trading within a tight range of about 35 pips, after printing a five-month high just below 1.3700 late last week, according to FXStreet.
FXStreet said the lack of immediate UK developments is central to the story, with the Bank of England on hold since July and its next decision set for September 17, while currency desks traced the bulk of the action to pricing outside Britain.
The dollar weakened as the US Treasury said on August 19 it would at least double the size of its long-dated buyback operations from September 9, after the 30-year yield had reached levels last seen in 2007. FXStreet added that the second instalment of that plan pushed the ten-year yield beneath 4.72% and the 30-year toward 5.25%, alongside a roughly 2.5% decline in the dollar over the past month on a trade-weighted basis.
FXStreet also highlighted concern about a correlation that unnerved desks, with yields rising and the dollar falling together last week, and pointed to Treasury and debt dynamics, including that US federal debt above $40 trillion is a key driver for the dollar. It noted UK data showing July inflation up to 2.9% year over year, core at 2.6%, unemployment steady at 4.9%, and payrolled employment down 86K over the year, ahead of an autumn Budget on October 28.