Pound Rides Dollar's Weakness to Multi-Month High

The British pound has been on a tear against the US dollar in recent days, breaking through the 1.36 handle and reaching levels not seen since the spring.

However, this move is more a reflection of the dollar's weakness than sterling's strength. The US Treasury announced an increase in liquidity support buyback operations for longer-dated nominal coupon securities, which has led to a sharp decline in long-term yields and a softening of the dollar across major pairs.

The dollar index broke to a fresh eleven-week low near 98.70, while the EUR/USD pair rose to 1.1711, with the GBP/USD clearing 1.36.

The pound's own inputs were neutral at best, with UK headline CPI rising to 2.9% in July from 2.6% in June, matching forecasts exactly. However, core inflation remained unchanged at 2.6%, services inflation eased, and producer input prices fell sharply.

This lack of reaction suggests that sterling is being driven by developments on the other side of the quote, rather than its own data.