On Wednesday, major currency pairs experienced significant moves following an announcement from the US Treasury. The Treasury stated it would at least double the size of its liquidity support buyback operations in longer-dated bonds, increasing each operation from $2 billion to at least $4 billion, effective September 9 through November 4 [2][3]. This announcement led to a sharp decline in US long-term yields, with the thirty-year yield dropping close to ten basis points from a print above 5.33% on August 18, and the ten-year easing toward 4.65% [2][3].
The GBP/USD pair closed 0.53% higher just above 1.3600, marking its best close in three months [3]. The move was not driven by UK domestic data, as the UK inflation report showed annual CPI rising to 2.9% in July from 2.6%, matching consensus, and core inflation holding at 2.6% against a 2.5% forecast [3]. However, services inflation slowed to 3.4% from 3.6%, and the composition of the inflation data was not seen as hawkish, with the rise attributed to a regulated household energy cap rather than underlying demand [3]. The Bank of England's July projection had already anticipated this inflation peak, and the committee's 6-3 split in July was unchanged, providing no new reason to move rates on September 17 [3].
The GBP/JPY cross retreated, failing to climb past 216.00 and falling below the 50-day Simple Moving Average (SMA) of 125.56, trading at 214.25, down 0.37% [1]. Technical indicators showed sellers gaining momentum, with the Relative Strength Index (RSI) indicating bears are in control [1]. The next support levels are the 200-day SMA at 212.45 and the August 7 low of 211.47 [1]. The British Pound was the strongest against the US Dollar on the day, but lost 0.34% against the Japanese Yen [1].
USD/JPY closed 0.92% lower just above 158.00, marking the largest single-session decline since the early-August intervention, despite no action from Tokyo [2]. The Yen's best session since Tokyo last intervened was attributed to the US Treasury's bond buyback announcement, not Japanese policy [2]. The pair ended the session sitting on its 200-day Exponential Moving Average (EMA) [2]. Market pricing for a September Bank of Japan rate increase sits just under 80%, up from around 65% in early August, with imported inflation driving the case [2]. Wholesale prices rose 7.2% annually in July, and the Yen-based import price index rose 29.1% [2]. Japan's second-quarter GDP grew 1.1% annualised against a 2% consensus, with weak household demand offsetting robust exports [2].
Market reactions were broad, with the Dollar sold against every major counterpart into the American afternoon. The Swiss Franc gained close to 1.8% against the Dollar, and the New Zealand Dollar roughly 1% [3]. Analysts noted that the moves were driven by US fiscal policy rather than domestic catalysts in the UK or Japan, raising questions about the durability of these levels [3].
CONCLUSION
The US Treasury's decision to expand bond buybacks triggered sharp declines in the Dollar and significant gains for the Pound and Yen, with GBP/USD reaching a three-month high and USD/JPY experiencing its largest drop since August. These moves were driven by US policy rather than domestic economic data or central bank actions in the UK or Japan. Market participants should monitor US fiscal developments, as they continue to exert outsized influence on global currency markets.