The US inflation data for June unexpectedly cooled, prompting markets to reassess the future monetary policy path of the Federal Reserve. The US dollar index continued its decline, pushing the GBP/USD pair higher to near 1.3420 during Wednesday's Asian trading session, marking a second consecutive day of gains. Concurrently, growing market expectations for further monetary tightening by the Bank of England have also enhanced the relative appeal of the British pound.

Data released by the US Bureau of Labor Statistics showed the Consumer Price Index (CPI) rose 3.5% year-on-year in June, below the market expectation of 3.8% and significantly lower than the 4.2% increase in May. On a monthly basis, it fell by 0.4%, a notable reversal from the 0.5% gain in May, indicating signs of easing overall inflationary pressures in the US. Core inflation, which excludes food and energy prices, also moderated, further strengthening the market's view that US price increases are slowing. Following the inflation data release, the US dollar index weakened, and US Treasury yields fell in tandem, as markets perceived a reduced immediate need for the Federal Reserve to tighten policy further, providing support for non-US currencies, including the pound.

However, the US dollar's decline remains somewhat constrained by safe-haven demand. Recent renewed tensions between the US and Iran have escalated, raising market concerns over transport security in the Strait of Hormuz and the stability of global energy supplies. The Strait of Hormuz handles approximately 20% of global seaborne crude oil shipments. Geopolitical risks have driven international oil prices higher, reigniting market worries about a rebound in global inflation. Rising energy prices suggest future inflation could face renewed upward pressure, leading markets to believe the Federal Reserve may maintain its high-interest-rate policy for longer than previously anticipated. Markets now estimate the probability of a further Fed rate hike in September at around 50%. While this represents an adjustment from more aggressive earlier expectations, overall policy remains restrictive, which also limits the scope for further US dollar depreciation to some extent.

In contrast, the pound is receiving clear support from Bank of England policy expectations. As international energy prices rise, investors believe the pace of UK inflation decline may slow, necessitating that the Bank of England maintain a relatively tight monetary policy stance to prevent price pressures from re-accelerating. Markets have already fully priced in expectations for another Bank of England rate hike in September and anticipate the possibility of two further hikes in 2026. This has widened the interest rate differential expectations between the UK and the US, providing favorable conditions for the pound's performance.

Currently, markets are awaiting subsequent US economic data, such as the June Producer Price Index (PPI), to further gauge whether US inflation is improving sustainably. If the PPI continues to come in below market expectations, short-term Fed policy expectations may shift further towards dovishness, potentially putting continued pressure on the US dollar. Conversely, if producer-side inflation shows signs of re-acceleration, it could reinforce market expectations for the Fed maintaining high rates, limiting further gains for the pound.

Technical Analysis Perspective

From a technical standpoint, the GBP/USD pair has reclaimed a firm footing above the 1.3400 psychological level on the daily chart and is trading near its key moving averages. The overall trend is gradually shifting from a previous corrective phase to a consolidating but slightly stronger bias. If the pair decisively breaks through the resistance near 1.3450, it could potentially test higher levels around 1.3500 and 1.3560. Initial support on the downside is located near 1.3360, with further support around 1.3300. Daily momentum continues to improve, and bullish forces have strengthened, but a close watch on the key resistance zone breakout is still needed in the short term.

The 4-hour chart shows GBP/USD oscillating higher along short-term moving averages, with the moving average system gradually forming a bullish alignment, indicating the short-term rebound trend remains intact. Momentum indicators remain in positive territory, but as the pair approaches previous highs, some profit-taking pressure may emerge near 1.3450. A break above this level could see the short-term uptrend continue. A drop below 1.3360, however, could lead to a retest of the 1.3300 or even 1.3250 support zones. Overall, the short-term outlook maintains a consolidating but slightly stronger pattern.