British Pound: Upward momentum targets 1.3700 against US Dollar – UOB

Sterling remained stable on Friday as the euro stabilized near an important resistance level, thanks to ongoing U.S. Treasury interventions in the bond market that fostered a risk-friendly trading environment. By 05:14 ET, GBP/USD rose 0.32% to 1.3672, while EUR/USD climbed 0.27% to 1.1709. The week's main focus was the unexpected U.S. Treasury announcement of increased bond buyback operations on Wednesday.

ING's Chris Turner warned against overreacting to the Treasury intervention, stating it was mainly a signal exercise aimed at addressing higher long-term Treasury yields. Turner contrasted this week's events with the April 2025 "Liberation Day" scenario, where safe-haven flows moved into the franc, euro, and yen due to policy credibility concerns.

Instead, Turner saw this as a soft dollar, pro-risk story, which he believed would lead to a gentler dollar decline and positive performance of high-beta commodity and emerging market currencies. Treasury Secretary Scott Bessent hinted at fiscal consolidation plans, but many market participants remained skeptical of their impact on the near-6% budget deficit.

The U.S. dollar was expected to face support at 98.65/70, with UBS strategists predicting a struggle to surpass 99.00. Friday's U.S. data calendar included the August S&P PMI readings, all expected to show continued expansion, with no scheduled Fed speakers. The broader Federal Reserve narrative of softer inflation and labor data weakening the case for further rate hikes remained intact.

UBS noted that if rate hikes were removed from market pricing, existing long-dollar positions might be unwound. Domestic news during the summer parliamentary recess was minimal, with markets generally giving Prime Minister Andy Burnham the benefit of the doubt before the November budget. CFTC data showed GBP net positioning remaining heavily short, giving the currency a mechanical tailwind: any additional positive signal on UK fiscal credibility could lead to accelerated short-covering beyond what macro fundamentals would justify.

For the euro, Friday's eurozone data included the August PMI readings, expected to show mild expansion, and the ECB's Consumer Expectations Survey, where inflation expectations had risen to 3.0% in March and were seen staying elevated at 2.8%. Turner believed EUR/USD would consolidate in a tight range around 1.1670-1.1710, with the eurozone economy coping better with high natural gas prices and the soft-dollar narrative taking hold.

UBS cautioned that a final ECB rate hike in September was already priced in, limiting the euro's ability to rally independently on ECB hawkishness. ING targeted EUR/USD at 1.17 by end-September, with support at 1.1650/60 and resistance at 1.1700. UBS forecasted GBP/USD at 1.40 by December 2026 and 1.41 through the first half of 2027, with resistance at 1.38 and support at 1.33.