- The GBP/USD outlook remains neutral amid the Middle East crisis.
- The UK CPI data came upbeat, lending mild support to the pound.
- Markets now focus on FOMC and BoE policy guidance.
The GBP/USD outlook improved slightly on Wednesday as the UK CPI met expectations, showing a rise in food inflation. However, the pair lost more than 1% in the last session to 1.3415, as the US President threatened Iran for an unconditional surrender.
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The UK Office for National Statistics released the CPI data ahead of the London session, showing the headline inflation rise to 3.4% y/y in May, compared to 3.5% in April. The reading matched market expectations. The Core CPI excluding food and energy prices rose to 3.5% y/y against the previous reading of 3.8% and expected 3.6%.
Meanwhile, the monthly CPI figures eased to 0.2% in May from the previous 1.2%. Market projection was a rise of 0.2%. The pound reacted positively to the data amid mixed inflation data.
In Tuesday’s New York session, the GBP/USD saw a slump of more than a hundred pips as the Middle East crisis reignited after Trump asked Iran for a surrender. This created a fear of America’s involvement in the Iran-Israel war. The safe-haven flows towards the US dollar weakened the pound. However, despite continued attacks from both sides, Iran has urged Oman, Qatar, and Saudi Arabia to convince the US President to call for an immediate ceasefire.
Key Events Ahead
Traders face increased volatility risk as the FOMC interest rate decision looms today. Markets expect the Fed to keep the policy rates unchanged at 4.25% – 4.50%, while two cuts priced for 2025. The dollar’s directional bias remains dependent on Fed guidance as the speculations surge that the Fed may cut 25 bps once due to tariff concerns and oil-led inflation risk. However, last week’s softer inflation data casts doubts on a hawkish shift.
Tomorrow, the Bank of England rate decision is due as well. The central bank is expected to retain the rates. However, the vote split is important to watch.
GBP/USD Technical Outlook: Key Support in Play
The 4-hour chart shows a bearish tilt as the price broke below the 20-period SMA and key support at 1.3460, marking fresh monthly lows to test the key support at 1.3415. As long as the support holds, the price may attempt another rally beyond the 1.3500 area. However, if the support breaks, the pair may slip towards 1.3340 ahead of 1.3300.
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The RSI has hit the oversold area and started rising. It means a mild support for the pair. Any upside will meet strong resistance at a previously broken support level of 1.3475 ahead of 1.3500. Finding acceptance above 1.3500 may gather buying traction again.
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Saqib Iqbal
