1.3670: British Pound hits six-month highs as UK PMI beats expectations

The British Pound (GBP) surged to fresh six-month highs against the US Dollar (USD) on Friday, propelled by stronger-than-anticipated UK business activity data, while the USD remains weakened following the US Treasury's plan to increase bond buybacks. The GBP/USD pair surpassed the 1.3660 level for the first time since February and is currently trading just above 1.3670.

According to preliminary data from S&P Global, July's UK Services Purchasing Managers Index (PMI) rose to 52.8 from June's 52.1 reading, beating expectations of a slight decline to 51.8. Manufacturing Activity, however, slowed down to 51.5 from 51.9 in the previous month, as forecasted. The Composite PMI also increased to 52.5 from 52.2 in June, again exceeding forecasts of a decline to 51.6.

Earlier in the day, National Statistics reported that UK retail consumption declined by 0.5% in July, meeting market expectations after a 0.7% increase in June. Year-over-year, sales grew at a 1.6% pace, down from 3.8% in June and below the consensus 2.2%. Public Sector Net Borrowing rose by GBP 1.8 billion in July, below June's GBP12.78 billion but exceeding the market's expectation of GBP0.3 billion.

The US Dollar is currently on the defensive as the US Treasury Secretary Scott Bessent announced on Thursday that bond buybacks could escalate beyond the $4 billion per operation initially announced the day before. The US Treasury disclosed a plan to double liquidity for repurchasing long-term securities, aiming to curb the yield rally.

Strategists at BBH see this plan as a debt-management swap, in which the Treasury "buys and retires older, less liquid bonds (off-the-run) in favor of new, more liquid debt (on-the-run) issued through its regular auction." However, they warn that if investors believe the Treasury is managing yields rather than liquidity, it could undermine US fiscal credibility and negatively impact the USD.