The British Pound is experiencing volatile moves today after recent uptick as key inflation data releases from UK are due today. According to Business Standard, GBP/USD pair is currently quoting at 1.3413, down 0.10% on the day after hitting a one and half week high of 1.3465. The pair's recent volatility comes as investors await crucial UK economic indicators that could influence the Bank of England's future monetary policy stance.
The US Dollar weakened on Wednesday ahead of the Federal Reserve's first policy decision under Chair Kevin Warsh, with GBP/USD holding steady at $1.3430 as investors remained cautious before the Fed's announcement. According to The Economic Times, against a basket of currencies, the dollar eased slightly to 99.53, unwinding some of its safe-haven gains made as details emerged of the U.S. and Iran's interim agreement to end the war in the Middle East. The Fed is widely expected to stand pat on rates at Warsh's debut meeting, with the statement, economic projections and news conference being scrutinised for any signals of the Fed dropping its easing bias as officials grow more hawkish on inflation risks. Erik Weisman, chief economist at MFS Investment Management, noted that "The Fed is...likely to signal a neutral bias for monetary policy going forward."
UK stocks hit a three-week high on Tuesday, as a sinking oil price softened the outlook for inflation. As reported by Business Standard, the FTSE 100 added 0.6% at 10,494.21, benefiting from the oil price collapse following the US-Iran peace deal. The sudden US-Iran accord has sent a shockwave through energy markets, causing the largest single-day drop in WTI crude since March 2023, with WTI down over 4.40% as the deal is expected to reopen the Strait of Hormuz while lifting a US Navy blockade, releasing one-fifth of global oil production back into flow. However, neither Washington nor Tehran has released the official text of the agreement, with major shipping lines delaying vessel rerouting through the strategic waterway until full transparency is established.
The Federal Reserve begins its two-day policy meeting today, with a decision due Wednesday under new Chair Kevin Warsh, who begins a four-year term. As reported by Investing.com India, the Fed is widely expected to leave interest rates unchanged at 3.50%-3.75% in Warsh's first meeting. However, the oil price collapse radically alters the inflation outlook, making the Federal Reserve's expected rate hike this week highly unlikely. Fed funds futures have completely repriced, with the market now pricing in a less than 10% chance of a rate hike in the third quarter, down from over 70% last week. This gives the Fed scope to maintain a restrictive policy stance, and policymakers may choose to remove the easing bias contained in their previous statement. A dovish Warsh — acknowledging that the oil crash following the peace deal has reset the inflation outlook and that the rate-hike fear is overdone — extends the dollar's slide and gives cable room to push toward 1.35. A hawkish hold, with the committee holding firm on higher-for-longer because the hard inflation data hasn't caught up to the oil move, firms the dollar and pressures sterling back toward 1.3300.
Technically, GBP/USD sits at 1.3413, below a simple moving average cluster near 1.3472, with trend-line support from 1.3159 and the RSI (14) just under 50. The pair was rejected at the 1.3460 area on Monday, with key resistance lying between 1.3485 and 1.3505 which has held bulls since mid-May. Market analysts remain deeply divided over cable's path, with Scotiabank expecting GBP/USD to secure a limited net advance to 1.37 by the end of this year, while Goldman Sachs sits at the cautious end, expecting no gains above 1.35 even if the dollar loses ground. The MoU between the U.S. and Iran is set to be signed June 19 in Switzerland, adding a geopolitical date to the week. While the dollar's decline amid improving risk sentiment creates opportunities beyond just the pound, analysts are becoming cautious ahead of UK local elections and the Bank of England meeting, with potential for a Burnham victory introducing fiscal uncertainty that could pressure the pound.
