GBP/USD extends losses as Middle East tensions boost demand for the US Dollar.
Federal Reserve maintains benchmark rate at 4.25%-4.50% while signaling cautious stance on BTC/USDinflation.
UK inflation slows to 3.4% but remains significantly above BoE's target, keeping rate cut expectations alive.
The British Pound continues its struggle against the US Dollar, trading near 1.3410 during Thursday's Asian session. This marks the third consecutive day of declines as market participants digest multiple macroeconomic factors. The US Dollar's strength persists amid growing geopolitical risks, particularly surrounding potential escalation between Israel and Iran.
Recent reports indicate US officials are preparing for possible Iranian retaliation, creating additional uncertainty in financial markets. This development follows earlier speculation about potential military actions, contributing to the Dollar's safe-haven appeal.
Meanwhile, the Bank of England faces a delicate balancing act as it prepares its monetary policy announcement. While UK inflation showed modest improvement in May, dropping to 3.4% from April's 3.5%, the figure remains substantially above the central bank's 2% target. Market participants currently anticipate approximately 48 basis points of rate reductions by year-end.
Federal Reserve Chair Jerome Powell's recent remarks have further complicated the currency equation. Powell acknowledged inflation remains elevated and could potentially increase, citing external factors including trade policies. The Fed maintained its benchmark rate unchanged at 4.25%-4.50% during Wednesday's meeting, aligning with market expectations.
The central bank's projections suggest approximately 50 basis points of rate cuts through 2025, though Powell emphasized any policy adjustments would remain data-dependent, particularly focusing on labor market conditions and inflation trends.
As traders await the BoE's decision, technical indicators suggest the 1.3400 level serves as critical psychological support for GBP/USD. A break below this threshold could open the door for further downside, while holding above might signal potential consolidation ahead of clearer policy signals from both central banks.
