Sterling rose against the dollar on Thursday, with GBP\/USD up 0.25% and trading at 1.3639 after touching an intraday peak of 1.3659, the highest since February. The move came as markets assessed US data suggesting the labour market remains solid despite a softer July Nonfarm Payrolls report, while UK inflation kept Bank of England rate-hike expectations in play.<\/p>\n
The dollar pared earlier losses after the US Treasury outlined a bond buyback programme aimed at improving liquidity at the long end of the curve, a step some markets read as a form of yield curve control. GBP\/USD extended gains for a second session and hovered around 1.3630 in European trading, supported by the Treasury\u2019s plan to double buybacks of long-dated securities with maturities of 10 to 30 years to curb rising yields and ease liquidity strains, with a sustained break above 1.3650\/60 framed as opening scope towards 1.41 this year.<\/p>\n
We are watching the GBP\/USD pair closely as it tests the critical resistance zone between 1.3650 and 1.3660. If the pair secures a daily close above this level, it will clear the way for a major medium-term rally toward 1.4100. Derivative traders should position for this breakout by utilizing long call options or bull call spreads to capture the potential upside while limiting risk.<\/p>\n
The primary driver behind this move is the ongoing weakness of the US Dollar, compounded by the US Treasury’s aggressive bond buyback program. This liquidity injection, which acts like a stealth form of yield curve control, has pushed the US Dollar Index (DXY) down toward the 100.50 mark. We recommend purchasing near-the-money GBP\/USD call options to exploit this persistent downward pressure on the greenback.<\/p>\n
On the other side of the equation, the British Pound remains resilient because sticky domestic inflation continues to fuel expectations of steady interest rates. Recent UK data shows core services inflation holding firm at 4.6%, keeping the Bank of England from cutting rates as quickly as its peers. To capitalize on this interest rate divergence, we suggest selling out-of-the-money puts to finance our bullish call positions.<\/p>\n
Implied volatility for sterling options remains relatively low, making long-volatility strategies highly attractive before a major breakout occurs. Traders should focus on maturities of 30 to 60 days to allow the 1.3650 breakout enough time to develop and run toward our 1.4100 target. We must keep stop-losses tight on any spot positions, as a failure to break 1.3660 could trigger a quick pullback toward support at 1.3450.<\/p>\n\n\n\n