Pound Sterling holds firm vs US Dollar as Fed monitors tariff-driven inflation risks

The Pound Sterling (GBP) extends its gains, trading near a fresh three-year high around 1.3650 against the US Dollar (USD) during Wednesday’s European session. The GBP/USD pair remains supported as the US Dollar continues to weaken, with safe-haven demand retreating following Tuesday’s announcement of a ceasefire between Israel and Iran.

The US Dollar Index (DXY), which measures the Greenback against a basket of six major currencies, struggles near the weekly low around 98.00 during European trading hours, reflecting broader Dollar softness.

US President Donald Trump confirmed on Tuesday that a truce between Israel and Iran is in effect, urging both nations to maintain peace. “The ceasefire is now in effect. Please do not violate it!” Trump posted on Truth Social, helping ease geopolitical tensions and further pressuring the US Dollar.

At the same time, Federal Reserve Chair Jerome Powell’s semi-annual testimony before the US House Financial Services Committee on Tuesday offered limited support for the Dollar. Powell emphasized that the Fed is in no rush to adjust interest rates, citing strong economic conditions and ongoing uncertainty surrounding tariffs. He noted that the central bank will closely monitor the impact of tariffs on inflation through June and July, and added that rate cuts could arrive sooner if inflationary pressures prove weaker than anticipated.

Pound Sterling Holds Steady as BoE’s Bailey Flags Labor Market Weakness

• The Pound Sterling (GBP) trades broadly stable against major currencies on Wednesday, despite cautious comments from Bank of England (BoE) Governor Andrew Bailey, who warned of growing risks to the UK labor market. Speaking before the Lords Economic Affairs Committee on Tuesday, Bailey noted early signs of labor market softening and reiterated the central bank’s gradual approach to cutting interest rates.
• “We are starting to see labour market softening, and wage settlements are likely to come off,” Bailey said, adding that rising employer contributions to social security schemes appear to be weighing on hiring. His remarks reinforced the BoE’s recent decision to keep interest rates unchanged at 4.25%, with a 6-3 majority, while maintaining a data-dependent stance focused on balancing inflation risks with labor market conditions.
• Supporting Bailey’s assessment, recent employment data suggests weakening job demand. According to recruitment platform Indeed, job vacancies in mid-June were down 5% compared to the end of March, signaling a potential cooling in the UK’s hiring momentum.
• Meanwhile, the US Dollar remains sensitive to upcoming inflation data, with Friday’s release of the US Personal Consumption Expenditures (PCE) Price Index for May expected to play a key role. As the Federal Reserve’s preferred inflation gauge, the PCE report is forecast to show year-over-year price growth accelerating, with core PCE inflation (excluding food and energy) rising to 2.6% from 2.5% in April. A stronger-than-expected print could revive expectations for a more hawkish Fed stance, potentially influencing GBP/USD dynamics.

Technical Analysis: GBP/USD Maintains Bullish Bias Above 1.3600

The Pound Sterling remains firm near a three-year high around 1.3650 versus the US Dollar. The short-term outlook for GBP/USD remains bullish, supported by the 20-day Exponential Moving Average (EMA), which is trending higher near 1.3513.

The 14-day Relative Strength Index (RSI) has bounced back above 60.00, suggesting continued bullish momentum. A sustained move above this level could signal further upside potential.

Key support lies at Monday’s low of 1.3370, while immediate resistance is seen at the January 13, 2022 high near 1.3750. A break above this level could open the door to additional gains in the near term.