The GBP/USD pair has slightly recovered, trading at 1.3452, which is up by 0.19%. This comes just before important decisions from the Federal Reserve (Fed) and the Bank of England (BoE) amid rising geopolitical tensions and recent US jobless claims data. Tensions are rising between Israel and Iran. US President Trump’s comments indicate he may not have much patience for diplomatic efforts. The latest US Initial Jobless Claims rose to 245,000, while May’s Housing Starts fell by 9.8% month-over-month to 1.256 million. Building Permits also dropped by 2% month-over-month to 1.393 million.

UK Inflation Data

UK inflation is showing some stability. The Consumer Price Index (CPI) increased by 3.4% year-over-year, but core CPI slightly decreased from 3.8% to 3.5% year-over-year. Market watchers expect no rate changes from either the Fed or the BoE. Everyone is focused on the Fed’s economic projections and dot plot. There’s also speculation that the BoE could cut rates by September, possibly followed by another cut in December. Technically, GBP/USD is near its two-week low of 1.3410 and will need to break above 1.3500 for further gains. If it fails, support is at the 50-day simple moving average of 1.3376. This week, the British Pound has strengthened considerably against the Canadian Dollar. As GBP/USD moves slightly up to 1.3452, it shows some short-term momentum, but not much urgency. An increase of 0.19% mostly seems like a pause rather than a trend reversal, especially with so many upcoming events, such as central bank decisions, slow macroeconomic data, and geopolitical worries.

Central Bank Decisions

No surprises are expected from the Fed or the BoE this week regarding rate changes. However, traders are still attentive to the sentiment coming from these banks. At the Fed, the dot plot and economic projections will guide expectations for the rest of the year. If there’s no policy shift, signals in language matters as we look for hints about future moves. At the BoE, inflation patterns suggest a reduced sense of urgency. While the headline CPI is at 3.4% year-on-year, the slight drop in core inflation from 3.8% to 3.5% implies a potential for continued moderation without the need for aggressive policy changes. This leads to expectations of a dovish tone, with futures indicating a growing likelihood of a rate cut by September, possibly followed by another before the year ends. US data is also showing some warning signs. The increase in jobless claims to 245,000 alone isn’t alarming, but when combined with weaker housing starts—down 9.8% month-over-month—and a 2% drop in building permits, this hints at a slowdown in consumer demand and residential investment. This could impact future economic activity and suggests that the Fed may have some room to cut rates if necessary. Geopolitical tensions add uncertainty that complicates pricing in the markets. The growing conflict between Israel and Iran, especially with Washington’s impatience, could lead to risk-off trading, which typically supports the US Dollar during times of stress. But in a more controlled escalation, reactions may vary, especially among commodities and energy-sensitive currencies. From a technical standpoint, GBP/USD is at a critical point, lingering near its recent lows around 1.3410. A clear break above 1.3500 is needed for any upward movement. If that doesn’t happen, the next support level is at the 50-day SMA of 1.3376. In comparison, the Pound has performed better against the Canadian Dollar, possibly due to differing expectations for rate policies or risk sentiment related to energy markets. However, the Dollar remains strong against other currencies influenced by interest rate speculation and global growth. In the coming days, we will closely monitor how market participants respond to comments from central banks and broader economic trends. Current expectations are stable, but any surprises in data or sentiment could shift positions. For a push upward, there may need to be more than just a soft CPI report or dovish remarks; we might need confirming signs of softness in US data alongside manageable core UK inflation. Conversely, if economic figures or central bank guidance suggest persistent inflation or strength in the US labor market, we could remain range-bound or even drift lower as traders adjust overly dovish expectations. Every point around 1.3450 is significant as we assess whether broader market flows will favor the GBP or revert to the safety of the USD. Create your live VT Markets account and start trading now.

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