Dollar Ticks Higher as Yields Rebound, Sterling Holds Six-Month High

The Dollar Index closed Thursday's session at 98.7890, up 0.13%, a modest bounce after Wednesday's slide on news the US Treasury doubled the maximum size of its long-end buyback operations, from $2 billion to at least $4 billion per operation, effective September 9. That announcement had pulled Treasury yields lower and pressured the dollar broadly on Wednesday; Thursday saw yields tick back up, with the 10-year adding 5.1bp to 4.704% and the 30-year adding 5.4bp to 5.248%, while the 5-year rose 4.1bp to 4.394%. US equities fell (S&P 500 -0.61%, Dow -1.03%, Nasdaq -0.94%) as the VIX jumped 6.72% to 15.89. The bounce looks partial rather than a reversal: EUR/USD is still up roughly 2.4% over the trailing month, per Trading Economics.

The Fed funds target sits at 3.50-3.75%, and the live 2026 policy debate is whether the Committee hikes, not cuts. Minutes from the July 28-29 FOMC meeting, released Wednesday at 2pm ET, showed the Committee held the range on a 9-3 vote, with three dissenters favoring a quarter-point hike. Market-implied odds of a near-term hike sit in the low-30s%: about 31% per piptheory.com (Aug 14) and 32.7% per tradingpedia.com (Aug 20), down from roughly two-thirds after the July meeting. The Treasury's move to double its long-end buyback size added dollar liquidity and pressured yields lower Wednesday; Thursday's session saw yields partly retrace, with the 20+ Year Treasury ETF down 0.78%.

EUR/USD: 1.1675 (-0.02%), consolidating just below three-month highs after Wednesday's dollar-liquidity-driven rally faded into Thursday's close; euro-area annual inflation rose to 2.9% in July from 2.8% in June. GBP/USD: 1.3627 (+0.16%), a six-month high, extending Wednesday's gains as UK CPI accelerated to 2.9% y/y in July from 2.6% in June, a four-month high. USD/JPY: 159.05 (+0.57%), yen-specific weakness as Japan's 10-year JGB yield touched roughly 2.95%, its highest since 1996, on fiscal concerns tied to PM Takaichi's consumption-tax-cut plan. USD/CAD: 1.3788 (-0.15%), a second straight decline as the Canadian dollar was bid on firmer oil prices, with WTI crude up 2.50% and Brent up 2.02%.

Cable pushed to a six-month high above 1.363 in Thursday's session, closing +22 pips (+0.16%) at 1.36273 versus a 1.36058 prior close, extending Wednesday's rally. That move was broad-dollar-driven: the Treasury's buyback expansion pulled the 10-year yield down 6bp to 4.647% and the 30-year down 9bp to 5.196% on Wednesday. UK CPI, released Aug 19 by the ONS, added domestic support, accelerating to 2.9% y/y in July from 2.6% in June, a four-month high, keeping BoE hawkish repricing alive. No new BoE policy action this week — the last decision was the July 29 MPC meeting, which held Bank Rate at 3.75% on a 6-3 vote, with three members preferring an immediate hike to 4.00%. Today's UK calendar carries Retail Sales (forecast -0.5% vs 1.0% prior) at 16:00 and flash PMIs at 18:30, both live risk for the pair.

UK Retail Sales m/m at 16:00 (forecast -0.5%, previous 1.0%), alongside Public Sector Net Borrowing (forecast 0.0B, previous 16.0B). Eurozone flash PMIs land through the afternoon: French Manufacturing/Services at 17:15 (forecast 50.1/49.4, previous 50.0/49.8), German Manufacturing/Services at 17:30 (forecast 52.1/50.1, previous 52.2/49.6), and euro-area-wide Manufacturing/Services at 18:00 (forecast 51.8/51.5, previous 52.0/51.6). UK flash Manufacturing/Services PMIs follow at 18:30 (forecast 51.6/51.8, previous 52.8/51.8). Canada's Core and headline Retail Sales print at 22:30 (forecast 0.2%/0.4%, previous 1.2%/1.0%). US flash Manufacturing/Services PMIs are due at 23:45 (forecast 53.9/54.0, previous 53.8/53.6), followed by euro-area Consumer Confidence at 00:00 (forecast -16, previous -16).