The Daily Brief

Sterling got its inflation print and took it as permission. UK consumer price inflation accelerated to 2.9% in July from 2.6% in June, matching consensus exactly, while core held unchanged at 2.6% against expectations of a slip to 2.5%. Cable firmed through yesterday's session to close near 1.356 and has extended to 1.3611 this morning, its strongest level in three months and above the 1.3563 high set on 17 August.

The composition of the print matters more than the headline. The rise was energy-led, flowing from a crude price that has spent the month grinding higher on the unresolved Hormuz standoff, while the core rate refusing to fall is a domestic services problem the Bank of England cannot blame on a barrel. Traders responded by modestly trimming the odds of a Bank rate rise later this year, which reads oddly against a hotter headline until the labour data is put beside it: unemployment held at 4.9%, above forecast, payrolled employment fell 86,000 over the year, and regular earnings growth ran at 3.5%.

That combination is what keeps three members of a nine-strong committee voting for 4% while six hold at 3.75%. A cooling jobs market gives the majority its cover; a core rate stuck at 2.6% with energy pushing the headline toward 3% gives the dissenters theirs. Neither side gained decisively yesterday, which is precisely why the pound's gain came from the dollar side of the cross rather than from any repricing of the Bank.

The gilt market is the constraint sitting underneath all of it. The ten-year yield remains above 5.04%, close to multi-decade highs, and a two-year auction earlier in the week cleared at 5.155% against a 5.04% previous. A currency supported by high long yields for fiscal reasons rather than growth reasons is carrying a different kind of bid to the one sterling desks were modelling in June, and it is a bid that unwinds quickly if the fiscal picture is questioned.

At 1.3611, cable has cleared the top of its August range and now sits roughly half a big figure below 1.3661, the ceiling that has capped it for thirteen months and that three separate attempts this summer have failed to break. It is close to three and a half big figures above the 1.3279 low of 29 July. The asymmetry has flipped since Tuesday: the level is now within reach of a genuine breakout, but the last leg has been borrowed almost entirely from dollar weakness, and 1.3661 has historically required a domestic catalyst, not just a soft counterparty, to give way.

The US Treasury has changed the terms of the dollar trade. It confirmed it will at least double its liquidity-support buyback operations across securities maturing in 10 to 30 years, lifting the maximum buyback size to $4 billion for the period running to 4 November. The stated rationale is market liquidity and stability after the recent surge in long yields, but the signal read differently on the screens: the Treasury is willing to intervene directly to cap the long end.

The dollar index fell through 99 for the first time since late May and sits at 98.83 this morning, down 2.3% over the past month. The mechanism is straightforward once the plumbing is in view. Buybacks funded from the Treasury General Account push cash back into the system, improving global dollar liquidity, which reduces the scarcity premium foreign holders have been paying. Treasury Secretary Bessent has separately pressed for higher limits on the Federal Reserve's FIMA facility, the same objective by a different route: give the rest of the world dollars without forcing it to intervene in the currency market to get them.

The Federal Reserve's July minutes, released at 19:00 BST last night, confirmed that some participants favour raising rates this year to head off inflation pressure building later. On any ordinary evening that is a dollar-positive headline. It was almost entirely ignored, and the reason is that the meeting it describes was held on 28 and 29 July, before payrolls fell 23,000, before July CPI cooled to 3.4% headline and 2.5% core, before producer prices printed flat and retail sales fell 0.6%. Odds of a September hold now sit near two-thirds, against a roughly even split a month ago.

What is left is a genuine policy split, not between hawks and doves on the committee, but between two arms of the state. The Fed under Chair Warsh has withdrawn forward guidance and insists policy is restrictive enough to be patient. The Treasury is simultaneously acting to suppress the term premium that restrictive policy is supposed to generate. The ten-year has eased to 4.64% from the 4.71% it touched last week, and a market that cannot get paid for duration risk has to be paid somewhere else.

At 98.83 the index has broken the floor near 99 that contained every sell-off since late May, and is trading below Trading Economics' own end-of-quarter estimate of 99.44. The band that mattered all summer, roughly 99 to 102, no longer applies. The asymmetry now runs on the buyback rather than the data: a strong claims and Philadelphia Fed pairing this afternoon can slow the slide, but reversing it needs the market to decide the Treasury's commitment to capping long yields is smaller than yesterday's announcement implied, and today's 30-year TIPS auction at 18:00 BST is the first place that view gets tested.

Four point two per cent. That is South Africa's core inflation rate for July, accelerating for a fifth consecutive month to its highest level since July 2024, on the same morning the headline rate fell to 4.3% from 5.0% and undershot the 4.5% consensus. The market traded the headline. The Reserve Bank will be reading the core.

The rand rallied through yesterday's session, closing 0.92% firmer at 16.0944 and holding near 16.09 this morning, its strongest level since early March. The immediate driver was the headline miss, helped by lower fuel costs following the temporary US-Iran truce that took the barrel down in June and July. The catch is what that print measures: June and July fuel, not the Brent price sitting near $92 today on a stalemate that has not been resolved. The August petrol basket will take back part of what July gave.

Underneath the print, the currency is being carried by two external supports rather than one. The dollar's break below 99 has pushed capital out along the risk curve toward higher-yielding emerging markets, and gold near $4,490 has done the rest. South Africa's structural position, exporting the metal and importing the barrel, means a period of dollar weakness with firm precious metals is close to the ideal configuration for the terms of trade. That configuration is not something the country arranged, and it is not something it controls.

The policy question is now genuinely open. The SARB held the repo rate at 7.00% in July, citing a more favourable inflation outlook and an expectation that prices return toward the 3% target, while warning that renewed Middle East tension could force its hand. With the headline undershooting and the core still climbing, the market ahead of the 23 September meeting is split between a hold and a 25 basis point rise. The ten-year yield has eased to 8.64%, which suggests the local bond market is not positioning aggressively for tightening.

At 16.09 the rand sits at the strong end of a 52-week range spanning 15.64 to 17.82, close to a full rand inside its March weakness and comfortably below the 17.00 level that framed the stress case in July. It has gained 2.6% over the past month. The balance of risk has narrowed rather than reversed: the currency is now priced for both of its external supports to persist simultaneously, and the fuel component that flattered July's print reverses in August, so a firmer dollar or a leg higher in Brent removes more from here than a further soft print adds.

The clearest read on yesterday's Treasury announcement is not in the currency market but in what investors bought with the proceeds. Gold rose 4.3% to $4,522 before easing to $4,490, silver jumped 5.8% to $67, bitcoin gained 7.3% and ether rose more than 18% in a single session. That is not four separate trades. It is one position, expressed four ways, in assets that pay no coupon and cannot be issued by a treasury.

The move is a repricing of the long end rather than a growth call. Long yields retreated across the board, with the US ten-year at 4.64%, the Japanese equivalent easing to 2.84% and the UK holding near 5.05%, and the assets that suffer most from a high real yield rallied hardest as it fell. Asian equities recovered accordingly: the Nikkei is up 1.19% this morning after dropping 3.16% yesterday, and the regional tone has turned as global yields retreat, reversing the semiconductor-led rout that ran through Seoul and Tokyo earlier in the week.

Oil sits awkwardly against all of it. Brent is at $91.94, firm on a fourth consecutive session, with the US and Iran still at a stalemate over Hormuz and US crude inventories building for a third straight week. A rising barrel against building stocks is a risk premium rather than a demand signal, and it keeps the inflation channel open at the exact moment the fiscal authority is acting to hold long rates down. Those two forces do not resolve; they compound.

The context worth holding is that gold is doing this from a depressed base, not an extended one. It fell as much as 18% from the peak above $5,300 reached early this year, and the second quarter was its steepest decline since 2013. Central banks used that weakness to buy: 289 tonnes in the second quarter alone, up 62% year on year, with Poland adding 51 tonnes and the People's Bank of China adding 33. Official-sector demand accumulated through the drawdown, which is why the rebound has found so little supply above it.

At $4,490 gold is at its highest since June and has gained roughly 11% in four weeks, yet remains around 15% below the January record. The cross-asset tell is that gold, equities and long bonds all rallied together while the dollar fell, which happens when the market is repricing the currency rather than the cycle. While the buyback stands and Hormuz remains unresolved, the balance of risk runs toward that repricing extending rather than reversing, with next Wednesday's PCE print and the Jackson Hole symposium from 27 to 29 August the first credible occasions for the Fed to argue the other side.