British Pound advances as US Dollar remains subdued following inflation data

• GBP/USD rises as the US Dollar sustains losses from soft inflation data, raising expectations for a less hawkish Fed.
• US June CPI inflation slowed to 3.5% year-over-year from May’s 4.2%, comfortably beating the market consensus of 3.8%.
• The British Pound gains as energy-driven inflation worries push investors to price in aggressive BoE rate hikes.

GBP/USD rises for the second consecutive day, trading around 1.3400 during the Asian hours on Wednesday. The pair appreciates as the US Dollar (USD) holds losses following softer-than-expected US inflation data, fueling hopes that the US Federal Reserve (Fed) might adopt a less hawkish monetary stance.

The US Consumer Price Index (CPI) inflation eased to 3.5% year-over-year in June, dropping from a three-year high of 4.2% in May and coming in well below the market consensus of 3.8%. On a monthly basis, headline CPI actually declined by 0.4% in June, a notable shift from the 0.5% increase recorded in May.

However, the downside of the Greenback could be restrained amid rising safe-haven demand following renewed tensions between the United States (US) and Iran. The renewed Hormuz tensions drive up oil prices, fueling inflation concerns and prolonging higher interest rates by the Federal Reserve (Fed). The CME FedWatch Tool indicates that markets are now pricing in a roughly 50% chance of a Federal Reserve rate hike in September.

The British Pound (GBP) strengthens as Middle East tensions fuel inflation worries from rising energy prices, prompting investors to price in aggressive Bank of England (BoE) rate hikes. Markets now heavily anticipate two increases in 2026, with a September hike fully priced in.

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