G10 FX Holds Gains as Buyback Bounce Proves Fleeting for the Dollar

The Treasury's bond buyback expansion failed to hold US yields down, the 30-year US Treasury yield climbed back to 5.25%. Dollar Index sits near three-month lows at 98.70, heading for a weekly loss. G10 pairs held their ground.

Sterling shrugged off a soft UK Retail Sales print (-0.5% in July) and holds near six-month highs at 1.3649. The euro pushed toward 1.1690, its strongest since May, with markets’ ECB September hike bets near ~90%.

Across G10, the yen, Aussie and Kiwi tracked dollar softness without notable divergence.

Flash PMIs across the UK, eurozone and US are today's data event, a broad read on economic momentum against an elevated oil and geopolitical backdrop. Next week, the formal US Iran sanctions package lands on Monday, which could impact the Oil prices by extension energy prices and the dollar’s safe haven demand could come back into play.

---

GBP: Sterling Holds Firm Despite Softer Sales

GBP/USD: 1.3668 | EUR/GBP: 0.8563

GBP/USD trades near 1.3670 after touching 1.3660 on Thursday. Sterling sits close to a six-month-high and is on track for a weekly gain. The dollar's broad weakness continues to give the pound room to push higher.

The latest UK retail sales data added to the sterling’s softness. ONS figures showed UK retail sales volumes fell 0.5% MoM in July, reversing June's 0.7% rise. Year-on-year growth slowed to 1.6%, well below the 2.2% consensus and June's 3.8% pace. Sales still rose 1.6% from a year earlier. Excluding fuel, sales fell 0.9% across the board. GBP/USD barely flinched at the data. The pair's resilience came entirely from dollar weakness, not domestic strength.

July brought a monthly pullback but did not signal a broad collapse in consumer demand. Non-food sales weakened after strong June activity. Retailers linked part of the decline to promotions that pulled demand forward into June.

Public finances added another layer. The UK borrowed £1.8bn in July. That was £0.7bn more than a year earlier, and £2.3bn above the OBR forecast. Debt stood just below £3tn at the end of July.

The Bank of England (BoE) held rates at 3.75%, and a strong majority of economists see no further moves for the rest of the year. Thursday's softer labour data reinforced that view. Weaker employment figures and cooling price pressures have taken the top off BoE pricing for 2026; the case for additional hikes has quietly been fading. Public Sector Net Borrowing came in at £1.8 billion for July, below June's £12.78 billion but above the £0.3 billion forecast. Fiscal discipline is fraying at the edges.

Meanwhile, EUR/GBP edged up to 0.8570 as the euro caught a mild bid off sterling's softness. The cross holds below its 100-day simple moving average (SMA); the technical picture continues to favour modest sterling strength over the medium term, but that bias needs a catalyst to crystallise.

Sterling is holding its ground despite two consecutive soft domestic data points. The driver here appears to be more external; the dollar's deterioration is doing the heavy lifting. The GBP/USD pair is now testing levels not seen since February.

Key Technical levels for the GBP/USD pair: Resistance sits at 1.3660, 1.3700 and Support sits at 1.3600, 1.3550

---

EUR: Euro Eyes 1.1700 as ECB Hawks and Gas Prices Keep Heat On

EUR/USD: 1.1708 | EUR/GBP: 0.8563

EUR/USD edged higher through 1.1690 in the European morning to trade near 1.1700, testing its highest level since 14 May. Dip buyers stepped in during the Asian session, and the pair extended its month-to-date uptrend with conviction. Bulls are watching 1.1700 closely; a clean break above that level could open the path to 1.1725. EUR/GBP is consolidating in range after it held mild gains at 0.8570 as sterling absorbed the retail sales disappointment. ECB rate expectations seem to be doing the heavy lifting for the single currency.

The European Central Bank (ECB) deposit rate stands at 2.25%. The central bank held rates at its July meeting but signalled that higher energy prices could require another increase. Markets expect a near fully priced 25bp ECB rate hike in September.

That creates a clear contrast with the UK. The BoE faces softer demand and a loosening labour backdrop. The ECB faces renewed inflation pressure from energy costs. Policy divergence can support the euro against sterling if the ECB moves while the BoE waits.

EUR/USD has also climbed towards 1.1700. The pair benefits from broad dollar weakness and shifting expectations around US policy.

The euro still faces its own energy problem. Higher gas and oil prices raise inflation risks across the region. That can strengthen the case for tighter ECB policy. It can also weaken household purchasing power and growth. The euro therefore faces a delicate balance between higher rates and weaker demand.

The next test comes from the flash PMI data. The readings could show whether private-sector activity can absorb higher energy costs. A stronger result could reinforce the euro's recent momentum, while a weaker result could refocus attention on the cost of the energy shock.

Soaring European natural gas prices are keeping inflationary pressure elevated and tightening the balance in European gas storage; this could force the continent to compete more aggressively for scarce LNG supplies in the months ahead, pushing electricity prices higher. The ECB cannot afford to blink. Meanwhile, the dollar index (DXY) sits just above the three-month low. The interest rate divergence between the ECB and the Fed is sharpening: one central bank is tightening, the other is on pause, watching inflation data cool from the sidelines.

The euro's push toward $1.1700 reflects a fundamental repricing of ECB policy expectations, rather than short-term noise. The EUR/USD pair is on track for strong weekly gains. Eurozone inflation data, energy prices, and the September ECB monetary policy decision are the three forces likely to shape the euro's direction through the end of Q3.

Key Technical levels for the EUR/GBP pair: Resistance sits at 0.8570, 0.8660 and Support sits at 0.8530, 0.8550

Key Technical levels for the EUR/USD pair: Resistance sits at 1.1700, 1.1725, 1.1805, 1.1915 and Support sits at 1.1650, 1.1600

---

USD: Dollar Loses Ground as Buyback Gambit Fails to Stick

DXY: 98.57

The dollar index (DXY) traded at 98.70 on Friday in early European session, struggling to recover from Thursday's three-month low of 98.50. US Treasury Secretary Scott Bessent confirmed on Thursday that bond buybacks could increase beyond the $4 billion per operation announced the day before.

The 30-year US Treasury yield hit a 19-year high earlier in the week as investors grew increasingly reluctant to buy US government bonds, with federal debt topping $40 trillion. The initial market reaction to the buyback announcement proved short-lived. US Treasury yields resumed their climb and reversed much of Wednesday's dip; some analysts called it a "yield reality check."

Strategists framed the Treasury's move as a debt-management swap that risks undermining US fiscal credibility if investors conclude that the Treasury is managing yields rather than liquidity. Without a credible fiscal plan to reduce the debt, buybacks are unlikely to succeed in the long term, regardless of how large Bessent scales the programme. This is currently weighing on US fiscal credibility and capping dollar strength.

Meanwhile, the Fed’s Musalem noted that underlying inflation of 2.5% to 3.0% stays too high, describing overall financial conditions as accommodative. He warned that a Super El Niño could be the next supply shock and argued that early rate action could prevent more aggressive hikes later. That leans hawkish for the dollar over the longer horizon, even as the market pulls back near-term rate-hike bets amid cooling inflation prints. If inflation stays sticky and US yields rise again, the dollar could recover some ground. If yields fall while the Fed keeps a cautious stance, the pressure could return.

Geopolitics adds another variable. President Donald Trump announced a new economic pressure campaign against Iran and warned countries and entities supporting Tehran of severe consequences. The announcement adds fresh uncertainty around oil flows and the Strait of Hormuz. Iran sanctions, expected to be formally announced on Monday, could further tighten crude supply and push inflation expectations higher, a development that could revive dollar demand as a safe haven. The currency therefore faces competing forces rather than a one-way trend.

---

Dollar Weakness Lifts the Wider FX Complex

AUD/USD: 0.7165 | NZD/USD: 0.5983 | USD/JPY: 158.41 | GBP/JPY: 216.58

The softer dollar has supported the Australian and New Zealand dollars. AUD/USD trades around 0.7160 while NZD/USD sits near 0.5980. Both pairs benefit from the broader dollar move.

AUD/USD has pushed above 0.7100 as US fiscal concerns weigh on the dollar. Australian labour conditions still matter for the RBA outlook. A weaker employment backdrop could limit expectations for further tightening and cap the Australian dollar if domestic data deteriorates.

NZD/USD has posted a third straight daily gain above the mid-0.5900s. Expectations around the RBNZ and a weaker US dollar provide support. Geopolitical risk still creates a ceiling because a stronger safe-haven dollar can quickly reverse the move.

USD/JPY trades below 159 after rising about 0.6% on Thursday. Japan's July CPI showed headline inflation at 1.9% and core inflation at 1.8%.

The yen faces a familiar policy tension. Higher Japanese inflation can strengthen expectations for BoJ tightening. Higher US yields can pull in the other direction. USD/JPY therefore sits between domestic inflation pressure and US yield risk.

The Indonesian rupiah also benefits from the softer dollar. USD/IDR faces downward pressure as lower US yields and a weaker dollar support emerging Asian currencies.

The dollar is caught between two forces pulling in opposite directions. Dollar weakness is the dominant short-term theme, driving gains in EUR, GBP, AUD and NZD. But the medium-term picture is less clear, fiscal credibility concerns, sticky underlying inflation and geopolitical risk all introduce tail scenarios that could reverse the current trend sharply.

---

Current Rate Table

---

Market lookahead:

Fri, Aug 21

• Global PMI releases Services, Manufacturing and Composite (Aug)

Tue, Aug 25

• Germany Q2 GDP
• US Durable Goods Orders (Jul)
• US Consumer Confidence (Aug)

Wed, Aug 26

• Australia’s Consumer Price Index (Jul)
• US GDP Q2

Thurs, Aug 27

• Germany’s IFO Business Climate
• Eurozone’s Consumer Confidence (Aug)
• US Goods Trade Balance (Jul)

Fri, Aug 28

• US Personal Consumption Expenditures (Jul)

---

Stay Ahead in the Currency Game

Whether you're a daily FX trader or handle international transactions regularly, our 'Currency Pulse' newsletter delivers the news you need to make more informed decisions. Receive concise updates and in-depth insights directly in your LinkedIn feed.

Subscribe to 'Currency Pulse' now and never miss a beat in the currency markets!

---

Ready to act on today’s insights? Get a free quote or give us a call on: +44 (0)20 7740 0000 to connect with a dedicated portfolio manager for tailored support.

---