The GBP/USD currency pair showed a slight improvement on Wednesday after the UK Consumer Price Index (CPI) met market expectations.
The data revealed a rise in food inflation, with headline inflation at 3.4% year-on-year in May, slightly down from 3.5% in April. Core CPI, which excludes food and energy, rose to 3.5% year-on-year, below the previous 3.8% and expected 3.6%. Monthly inflation eased to 0.2%, matching forecasts. These figures gave the pound a modest boost despite mixed inflation signals.
However, the pair lost more than 1% in the previous session, dropping to 1.3415. This decline followed renewed tensions in the Middle East after the US President demanded unconditional surrender from Iran, raising fears of US involvement in the Iran-Israel conflict.
This geopolitical risk increased demand for the safe-haven US dollar, weakening the pound. Iran has called on Oman, Qatar, and Saudi Arabia to urge the US to seek an immediate ceasefire.
Looking ahead, traders face potential volatility as the Federal Open Market Committee (FOMC) announces its interest rate decision. The Fed is expected to hold rates steady between 4.25% and 4.50%, with markets pricing in two rate cuts in 2025.
The dollar’s direction will depend heavily on Fed guidance amid concerns over tariffs and oil-driven inflation risks. Softer recent inflation data has reduced expectations of a hawkish Fed stance.
The Bank of England’s rate decision is also due tomorrow, with expectations for rates to remain unchanged. However, the vote split will be closely watched for clues on future policy.
Technically, the GBP/USD pair shows a bearish bias on the 4-hour chart. The price broke below the 20-period simple moving average and key support at 1.3460, reaching monthly lows near 1.3415. If this support holds, the pair could rebound toward 1.3500.
A break below 1.3415 may push the price down to 1.3340 and possibly 1.3300. The Relative Strength Index (RSI) has entered oversold territory and started to rise, indicating some mild support. Resistance lies at 1.3475 and 1.3500, where buying interest could return.
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