On Thursday (August 20) during the Asian session, the British pound fluctuated at high levels against the US dollar, currently trading around 1.3600, still near the highest level since May 11 reached on Wednesday. The US dollar stabilized after falling to a three-month low overnight due to a decline in US Treasury yields, putting slight pressure on the pound. However, the fundamentals for the pound remain bullish – strong UK inflation data for July reinforced market expectations of at least one rate hike by the Bank of England before the end of the year, limiting the pound's downside. While the FOMC minutes showed a hawkish bias and geopolitical uncertainty provided support for the dollar, the dollar's rebound momentum was limited. The market is focusing on US initial jobless claims, the Philadelphia Fed Manufacturing Index, and speeches by Fed officials.

The US dollar stabilized but its rebound was limited, with multiple factors constraining its upside potential.

The dollar stabilized in Asian trading on Thursday after falling to a three-month low overnight, driven by declining US Treasury yields, becoming a short-term factor suppressing the pound's slight decline against the dollar. The previous yield decline stemmed from the US Treasury's announcement that it would at least double the size of its long-term Treasury repurchase program starting in September to ease pressure on the bond market. However, the dollar's further upside is limited. The FOMC minutes showed broader support for a rate hike within the committee, coupled with geopolitical uncertainty stemming from the ongoing US-Iran standoff at Hormuz, providing a floor for the dollar. Trump stated on Wednesday that Washington would strengthen economic restrictions on Iran, and the geopolitical risk premium persists. However, weak US economic data has reduced the probability of a September rate hike to about 33%, limiting the dollar's upside. While the dollar has stabilized temporarily, a sustained rebound is unlikely.

The pound's fundamentals are strong, and inflation data reinforces expectations of a rate hike by the end of the year.

Regarding the pound, the UK's July inflation data released on Wednesday provided support for the exchange rate. Overall CPI rose 2.9% year-on-year, in line with expectations, while core CPI remained stable at 2.6%, higher than the expected 2.5%. Rising energy prices pushed up overall inflation, but services inflation slowed to 3.4% from 3.6%, and goods inflation rose to 2.2% from 1.7%, key to core inflation remaining sticky. While this combination was insufficient to prompt the Bank of England to act hastily in September, it solidified market expectations for at least one rate hike before the end of the year. Bank of England Monetary Policy Committee member Green stated on Wednesday that signs of persistent inflation remained, and it was too early to discuss rate cuts. This statement further strengthened market expectations that the Bank of England would maintain a tight stance, providing structural support for the pound. Against the backdrop of diverging policy paths among major central banks globally, the Bank of England's relatively hawkish stance continues to provide a relative advantage for the pound.

This week's focus: US data and speeches by Federal Reserve officials.

The market is focused on Thursday's US economic data – initial jobless claims (consensus 210,000) and the Philadelphia Fed's August manufacturing survey (consensus 250,000, previous 414,000). If the initial claims data is higher than expected or the Philadelphia Fed index is significantly lower than the previous reading, it will further weaken expectations of a September rate hike, pushing the dollar weaker and the pound stronger. In addition, speeches by Fed officials may provide the market with more policy clues. Geopolitically, any new developments in the US-Iran standoff could affect the dollar's trajectory through risk aversion, bringing additional volatility to the pound against the dollar.

Summarize

The pound traded in a narrow range against the dollar, with the dollar stabilizing after falling to a three-month low overnight, putting short-term pressure on the pound. However, the pound's fundamentals remain bullish – strong UK inflation data for July reinforced expectations of at least one rate hike before the end of the year, limiting the pound's downside. While the FOMC minutes were hawkish and geopolitical risks provided support for the dollar, weak economic data has reduced the probability of a September rate hike to 33%, limiting the dollar's upside potential. The market is focused on US initial jobless claims, the Philadelphia Fed Manufacturing Index, and speeches by Fed officials. If the data weakens further, the pound could retest the 1.3600 level; conversely, the exchange rate may consolidate within the 1.3550-1.3620 range. (GBP/USD daily chart, source: FX678) At 11:05 Beijing time on August 20, GBP/USD was trading at 1.3604/05.