US Dollar Falls as Treasury Boosts Bond Buybacks | GBP, EUR & AUD FX Outlook

Key Highlight

• The US dollar came under renewed pressure after the US Treasury unexpectedly announced plans to at least double its purchases of longer dated government bonds. The move helped ease the recent rise in US yields and pushed the dollar to its weakest level since mid-May.
• The latest Federal Reserve minutes provided a counterweight to the dollar sell off. Several officials believe interest rates may need to rise if inflation remains elevated, while three voting members supported an immediate hike at the previous meeting.
• UK inflation was broadly neutral for sterling. CPI remained in line with expectations at 2.9%, while services inflation also matched forecasts. The data offered little fresh support for the pound.
• Australia provided the biggest overnight surprise. Unemployment increased to 4.5% and employment fell by 15,800, with all of the decline coming from part-time jobs. The weaker labour market data pushed the Australian dollar lower against most major currencies.
• Geopolitical risk also remains elevated following President Trump’s announcement of new economic sanctions against Iran and countries supporting it. Further details are limited, but continued disruption to energy supplies remains a concern for the eurozone economy.

Market Recap

The Treasury’s decision to increase long dated bond buybacks helped calm the recent rise in US yields and triggered a sharp fall in the dollar. However, the Federal Reserve minutes suggest the debate around future rate increases is far from settled.

UK inflation offered little direction for sterling, with headline CPI at 2.9% and services inflation both matching expectations. The pound therefore held relatively steady rather than gaining significant momentum.

Australia’s employment figures were considerably weaker than expected. The unemployment rate rose to 4.5%, while the economy lost 15,800 jobs rather than adding new positions as forecast. The Australian dollar reacted negatively and is currently underperforming most G10 currencies.

Meanwhile, new US sanctions against Iran add another layer of uncertainty to an already fragile energy market. Higher energy costs could continue to weigh on eurozone growth and limit the euro’s ability to recover strongly.

Market Overview

Euro vs Dollar

Near term: 50% conviction, cautiously higher, but stretched.

EUR/USD has risen strongly from its 13-month low and is now trading comfortably above its major moving averages. This leaves the pair vulnerable to a period of consolidation. The Fed’s internal debate over further rate increases also means a renewed dollar recovery cannot be ruled out.

The ongoing Iran situation presents another headwind for the euro, particularly through the impact of higher energy prices on the eurozone economy.

Medium term: 40% conviction, sideways with a mild upside bias.

Both central banks remain focused on different challenges. The Fed is weighing persistent inflation against the need to support growth, while the ECB faces additional pressure from higher energy costs. A renewed acceleration in US inflation could quickly bring dollar strength back into focus.

For a €250,000 transaction, a move to resistance would change the cost to a dollar buyer by approximately $1,590. A move to support would represent a difference of around $2,610.

Pound vs Dollar

Near term: 55% conviction, cautiously higher, but momentum is stretched.

GBP/USD remains above its three major moving averages, keeping the technical picture constructive. The recent repricing of Federal Reserve expectations continues to provide support for sterling, while UK interest rates currently retain a modest premium over US rates.

Medium term: 50% conviction, modestly higher with two-way risk.

The broader outlook remains supportive of sterling while the Bank of England maintains a relatively firm stance and the Federal Reserve eventually moves towards easing. However, the Fed remains divided, with three officials previously favouring an immediate rate increase. Recent options positioning also suggest investors are becoming less confident in a sustained pound rally.

For a $250,000 transaction, a move to resistance would reduce the cost by approximately £356, while a move to support would increase the cost by around £5,431.

Pound vs Euro

Near term: 40% conviction, sideways to cautiously lower.

GBP/EUR is sitting just below its 50-day moving average with slightly negative momentum. The ECB’s September meeting is likely to be an important catalyst, with another rate increase potentially putting further pressure on sterling against the euro.

The UK’s 2.9% inflation reading was exactly in line with expectations, meaning the data did not provide an additional catalyst for sterling strength.

Medium term: 45% conviction, sideways with downside risk.

Sterling continues to benefit from a sizeable interest rate differential, providing some underlying support. However, another ECB rate increase would narrow that advantage. The direction of the pair will also remain closely linked to how the Iran conflict affects European energy prices and economic growth.

For a €250,000 transaction, a move to resistance would reduce the cost by approximately £2,131, while a move to support would increase the cost by around £911.

Bottom Line

The Treasury’s bond buyback announcement has driven the latest wave of dollar weakness, but the Federal Reserve minutes highlight that the prospect of further US rate increases has not disappeared.

GBP/USD and EUR/USD have both moved significantly higher, making a period of consolidation possible. GBP/EUR currently carries more two-way risk, with the ECB’s September decision and developments surrounding the Iran conflict likely to be important drivers for the pair.

20th August  2026

How We Can Help...

Our team are here to help you get more from your money when making international payments. We will work with you to understand your payment needs and offer guidance on the best options available to you.

Get in Touch!

P: 07441 910 897

E: FX-Admin@frank-exchange.com

This document has been prepared solely for information and is not intended as an Inducement concerning the purchase or sale of any financial instrument. By its nature market analysis represents the personal view of the author and no warranty can be, or is, offered as to the accuracy of any such analysis, or that predictions provided in any such analysis will prove to be correct. Should you rely on any analysis, information, or report provided as part of the Service it does so entirely at its own risk, and Frank eXchange Limited accepts no responsibility or liability for any loss or damage you may suffer as a result.  Information and opinions have been obtained from sources believed to be reliable, but no representation is made as to their accuracy. No copy of this document can be taken without prior written permission.