GBP/USD advances on Wednesday, trading around 1.3610 after reaching 1.3630, its highest level since May 11. Sterling has gained momentum as the US Dollar weakens following a move by the US Treasury to provide additional liquidity through a buyback of longer-dated government bonds.
The Treasury’s action came shortly after the US 30-year Treasury yield climbed to its highest level since 2007. The buyback helped push longer-term yields lower, while the Dollar also declined. The US Dollar Index fell roughly 0.84% to 98.80, approaching levels last seen in late May.
US long-term yields had risen sharply amid concerns over persistent inflation, with elevated oil prices adding to price pressures as the US-Iran conflict remains unresolved. Higher energy costs have contributed to increased inflation expectations and reduced confidence in the outlook for monetary easing.
Geopolitical risks remain significant. The US ambassador to Israel said a large-scale conflict with Iran remains possible, although diplomatic efforts involving Syria, Israel and Turkey are reportedly underway to prevent further escalation. Any deterioration in the situation could keep oil prices elevated and create additional uncertainty for financial markets.
Attention now turns to the Federal Reserve’s latest meeting minutes. With limited communication from new Fed Chair Kevin Warsh, traders are looking to the minutes for clues about the central bank’s next policy move. Three policymakers reportedly dissented at the previous meeting, favoring tighter policy, including Beth Hammack, Lorie Logan and Neel Kashkari.
Meanwhile, UK inflation delivered a mixed picture. Headline CPI accelerated from 2.6% to 2.9% year-on-year in July, matching expectations, while core CPI held at 2.6%, slightly above the 2.5% forecast. Despite the stronger headline figure, markets remain cautious about the Bank of England’s September decision.
Current pricing indicates an 80% probability of rates remaining unchanged and a 20% chance of a 25-basis-point hike on September 17.
Trade idea:
GBP/USD remains bullish above 1.3580; buying dips toward 1.3590 could target 1.3680, provided Fed minutes do not trigger renewed Dollar strength.