GBP/USD closed last week at its highest level since February. That headline reads like a Pound story. It isn’t.
The real driver sat in the US bond market, not in London. The Treasury’s plan to expand long-dated bond buybacks pulled yields lower and dragged the Dollar down with it. Even a more hawkish set of Fed minutes couldn’t reverse that slide.
This week could settle the question. Wednesday’s Core PCE data and Fed Chair Warsh’s Jackson Hole remarks on Friday could reveal whether the Dollar’s weakness reflects a genuine policy shift, or just a reaction to a bond market intervention.
THE DOLLAR’S OWN BOND PROBLEM
The US Dollar Index posted a bearish candle last week and closed near its lowest level of the cycle. That drop traces back to one specific move: the Treasury said it would at least double its liquidity support buybacks of 10 to 30 year securities.
Yields and the Dollar fell sharply within days. By the end of the week, though, markets treated the move as a liquidity measure, not a policy shift. The initial rally faded.
Still, the Dollar kept falling. That is the more important detail. Even after markets dismissed the Treasury move as temporary, the Dollar extended a longer-term bearish trend that started months earlier.
The Fed’s own meeting minutes should have supported the Dollar, not weakened it. Three voting members pushed for a more hawkish stance, and the wider committee flagged ongoing inflation concerns. None of that stopped the slide.
For traders, that mismatch matters more than the headline. A Dollar that ignores a hawkish tilt from its own central bank is trading on something else. This week’s data could show what that something else actually is.
TARIFFS RETURN TO THE US-CANADA BORDER
Trade talks between the US and Canada collapsed late Friday. The US has announced 50% tariffs on $20 billion of Canadian imports, with Canada set to retaliate from September 8.
That is bearish news for the Canadian Dollar on paper. USD/CAD, however, has fallen for four straight weeks, and last week’s candle was another large bearish one.
Crude oil’s rebound explains part of that move. USD/CAD tends to fall when oil rises, because Canada is a major oil exporter and the Canadian Dollar often tracks crude prices higher.
Support near $1.3750 has held through the entire move lower. Two forces now pull in opposite directions: weak technical momentum against a tariff headline that historically supports the Dollar. That tension could produce a sharp reaction once the market picks a side.
This is a setup worth watching, not trading blindly. A break of $1.3750 could extend the bearish trend. A bounce off it would tell a different story, one where tariff headlines start to outweigh yield spreads.
GBP/USD: THE LEVEL THAT DECIDES THE STORY
Cable closed last week at its highest level since February. The weekly candle was large and bullish. It closed near the top of its range, a sign of strong short-term momentum.
A six-month high sits just above $1.3658, and that level has capped rallies before. Support levels sit further back at $1.3623, $1.3591 and $1.3557.
The Bank of England and the Federal Reserve currently hold policy rates at the same level, 3.75%. That parity removes one usual explanation, interest rate divergence. It puts the spotlight back on this week’s US data instead.
The chart, though, still looks consolidative over the longer term. The recent breakout has not been especially strong, and a retreat back inside the prior range remains possible.
A close above $1.3658 this week could confirm the breakout has genuine support behind it, beyond the Dollar’s bond market wobble. A failure to hold above it, followed by a slide back toward $1.3591, would suggest the opposite. The move would look more like Dollar weakness than genuine Pound strength.
Wednesday’s PCE print and Friday’s Jackson Hole remarks sit right in the middle of this setup. Either event could move the Dollar side of the equation more than anything happening in London this week.
KEY EVENTS THIS WEEK
- AUD Inflation Data (CPI m/m, CPI y/y, Trimmed Mean CPI m/m) — 9:30 PM ET, Tuesday, August 25 (previous: -0.1% m/m, 3.8% y/y)
- US Core PCE Price Index m/m and Prelim GDP q/q — 8:30 AM ET, Wednesday, August 26 (previous: 0.1% m/m, 1.5% q/q)
- Canada GDP m/m — 8:30 AM ET, Friday, August 28 (previous: 0.3%)
- Fed Chair Warsh Speaks, Prelim Benchmark Payrolls Revision, Jackson Hole Symposium Day 2 — 10:00 AM ET, Friday, August 28 (previous payrolls revision: -911K)
The Core PCE print matters most on Wednesday. It is the Fed’s preferred inflation gauge, so a hotter than expected reading would clash directly with the Dollar’s current weakness.
Friday brings the bigger event. Fed Chair Warsh is scheduled to deliver his first major public remarks since taking the role, at an event central banks often use to signal policy direction ahead of formal decisions.
The Preliminary Benchmark Payrolls Revision also lands Friday. Last year’s revision cut payrolls by 911,000, a reminder that headline jobs data can undergo large revisions months later.
WHAT THIS MEANS FOR TRADERS
This is a week that rewards patience, not conviction. The Pound trade and the Dollar trade look identical on the surface, but they are not the same trade underneath.
A trader reacting only to the weekly close risks missing the real driver. Last week, a bond market intervention and a hawkish Fed minutes report pulled in opposite directions. Wednesday and Friday could finally show which force wins out.
Weeks like this are exactly why risk management matters more than a strong opinion. A single data point, or a single sentence from a Fed chair, can move a level like $1.3658 in either direction within minutes.
TEST YOUR STRATEGY BEFORE THE NEXT VOLATILE WEEK
Markets like this one reward discipline over conviction. For traders who want to test a systematic approach without putting their savings at risk, ThinkCapital’s challenge programmes are currently offering 20% off with code WELCOME20, valid on simulated accounts from $2,500 to $50,000.
FREQUENTLY ASKED QUESTIONS
WHY DID GBP/USD RALLY IF THE FED MINUTES WERE HAWKISH?
The rally reflected broad Dollar weakness, not a shift from the Bank of England. The Treasury’s move to expand long-dated bond buybacks pulled yields and the Dollar lower last week, and that move outweighed the hawkish tilt in the Fed’s own minutes.
WHAT IS A TREASURY BOND BUYBACK PROGRAMME, AND WHY DOES IT MATTER FOR FX TRADERS?
A buyback programme is when the Treasury repurchases previously issued bonds, often to support liquidity in the long end of the yield curve. When the Treasury signalled it would expand these buybacks, yields fell sharply, and a weaker Dollar followed because lower yields typically reduce a currency’s relative appeal to global investors.
WHAT LEVEL IS GBP/USD WATCHING THIS WEEK?
The key level sits just above $1.3658, a six-month high that has capped previous rallies. A close above that level could support the case that the breakout has genuine momentum, while a rejection could send the pair back toward support near $1.3591.
WHAT IS THE JACKSON HOLE SYMPOSIUM, AND WHY DOES FED CHAIR WARSH’S SPEECH MATTER?
The Jackson Hole Symposium is an annual gathering of central bankers hosted by the Federal Reserve Bank of Kansas City. Fed chairs often use their remarks there to signal future policy direction, which makes Friday’s appearance from Fed Chair Warsh one of the most closely watched events of the week.
DISCLAIMER
This content is for educational purposes only and does not constitute financial, investment, or trading advice. ThinkCapital’s challenge programmes operate in simulated environments and do not involve real capital. Trading foreign exchange and other leveraged instruments carries a high level of risk and may not be suitable for all traders. CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. Past price action does not guarantee future results, and all trading decisions should be made independently and with appropriate risk management.
