Sterling strengthened on Thursday while the euro continued to push higher after an unscheduled intervention from the U.S. Treasury that signalled officials were uneasy about recent selling in long-dated U.S. government bonds. The dollar's retreat supported broader risk appetite and helped lift higher-beta currencies.
By 05:40 ET (09:40 GMT), the pound had risen 0.25% against the dollar to $1.3640. The euro was up 0.21% at $1.1702.
The key market catalyst came from Washington. On Wednesday the U.S. Treasury announced it would increase liquidity buyback operations by $2 billion in an unscheduled move, indicating concern over recent pressure at the long end of the Treasury market. In reaction, longer-dated U.S. yields fell by roughly 10 basis points.
Chris Turner, Global Head of Markets at ING, said the unscheduled action demonstrated the Treasury's displeasure with the recent long-end sell-off. He added that the so-called Bessent Put - or whoever might be watching the U.S. Treasury market - reduces one of the principal threats to risk assets this summer and should keep carry-trade strategies in favour.
"This unscheduled announcement tells us the Treasury’s displeasure with the recent sell-off at the long end of the bond market," Turner said. "The Bessent Put - or someone to watch over the US Treasury market - reduces one of the key threats to risk assets this summer and should see carry trade strategies remaining popular."
Turner also noted that the dollar index (DXY) unexpectedly broke lower from its 99.40-100 range and could drift toward 98.65, with 98 the next significant level if risk assets continue to rise.
On the U.S. policy and data front, the calendar was light on Thursday. Minutes from the July Federal Open Market Committee meeting, released on Wednesday, were not viewed as materially hawkish. Short-dated U.S. yields fell by about 5 basis points following the minutes.
Two Federal Reserve officials were scheduled to speak later in the session: Mary Daly, who voted for a rate increase at the July meeting and is generally regarded as hawkish, and Alberto Musalem, who is a non-voter. Market participants will watch their remarks for any signals that could test the dollar's newly lower range.
Importantly for sterling, market participants said the pound's rise was driven entirely by dollar weakness rather than any fresh UK data or political developments. There were no material domestic releases or policy cues in the United Kingdom to account for the move. The behaviour is consistent with GBP's sensitivity to global risk attitudes in a so-called "risk-on, dollar-off" phase, where higher-beta currencies outperform.
The euro also benefited from the Treasury announcement and moved higher on Wednesday, trading around ING's end-September target of 1.17. Turner observed that resistance at 1.1700 may be difficult to breach in the short term, but if it does, 1.1790 could come into view. He said support is located at roughly 1.1650/60.
Supporting the euro's medium-term demand, European Central Bank data published on Wednesday showed that foreigners bought about 1.1 trillion in eurozone securities over the previous 12 months, with June recording the largest-ever monthly purchases at 200 billion. Those flows have underpinned the narrative of diversification away from U.S. assets.
ING's near-term modelling maintains end-September targets of EUR/USD at 1.17 and the dollar index near 98. The firm said a change in that outlook would require either materially hawkish guidance from Daly or Musalem, or evidence that the Treasury's buyback signal does not succeed in anchoring long-end U.S. yields.
Market snapshot
- GBP/USD: +0.25% to $1.3640
- EUR/USD: +0.21% to $1.1702
- Longer-dated U.S. yields: down roughly 10 basis points
- Short-dated U.S. yields: down about 5 basis points after FOMC minutes
The move illustrates how a targeted policy action in the Treasury market can ripple through FX and risk markets, lifting currencies perceived as sensitive to global risk sentiment while softening the dollar and U.S. yields.