Pound Sterling trades cautiously as markets focus on US inflation data

The Pound Sterling (GBP) remains under pressure against the US Dollar (USD), trading near a three-week low around 1.3430 on Tuesday, as investors prepare for potential volatility ahead of the highly anticipated US Consumer Price Index (CPI) release scheduled for 12:30 GMT.

Market focus is squarely on the US inflation data, with the US Dollar Index (DXY) hovering just below its recent three-week high near the 98.00 level. The outcome of the CPI report is expected to influence the near-term direction of both the Greenback and the GBP/USD pair.

Traders are watching closely to see how tariffs imposed by President Donald Trump are influencing price pressures. Federal Reserve (Fed) officials have emphasized the need for more data to assess the impact of recent trade policies before considering any changes to interest rates. Today’s CPI figures could offer valuable insights into that assessment.

However, the broader impact of Trump's reciprocal tariffs — targeting 22 countries including Japan, South Korea, the European Union, and North American partners — is likely to be more evident in the August CPI data.

Consensus forecasts suggest that US headline inflation rose to 2.7% year-over-year in June, up from 2.4% in May. Meanwhile, core CPI, which excludes food and energy prices, is expected to increase to 3.0% from 2.8%. On a monthly basis, both headline and core CPI are projected to rise by 0.3%.

Daily Market Movers: Pound Sterling Steady Ahead of Key UK Inflation and Jobs Data

• The Pound Sterling (GBP) remains broadly steady against major currencies on Tuesday, as investors adopt a cautious stance ahead of two major UK economic releases. The Consumer Price Index (CPI) for June is due Wednesday, followed by labor market data covering the three months ending in May on Thursday.
• Economists expect UK inflation to hold firm at 3.4% year-over-year — a level still significantly above the Bank of England’s (BoE) 2% target. While such a reading typically supports keeping rates on hold, markets are currently pricing in a 25 basis point rate cut at the BoE’s August policy meeting. Growing concerns over a weakening labor market and heightened global trade tensions are contributing to this dovish shift.
• UK employers have scaled back hiring plans following an increase in employer contributions to National Insurance (NI), which rose from 13.8% to 15% in April as part of the Autumn Statement by Chancellor Rachel Reeves. This cost burden is adding pressure to an already softening labor market.
• The Office for National Statistics (ONS) is expected to report that the ILO Unemployment Rate remained unchanged at 4.6%, the highest since the three months ending August 2021.
• Globally, investors are closely monitoring developments in US-EU trade negotiations. Although President Donald Trump confirmed ongoing talks with Brussels, his recent announcement of a 30% tariff on EU imports has increased tensions. A breakdown in negotiations ahead of the August 1 deadline would likely dampen risk appetite given the large trade volume between the two economies.

Technical Outlook: GBP/USD Faces Bearish Pressure Below 1.3400

The GBP/USD pair trades near a three-week low around 1.3430, with the near-term trend turning bearish. Price action remains below both the 20-day and 50-day Exponential Moving Averages (EMAs), which are currently positioned at 1.3558 and 1.3477, respectively — reinforcing resistance overhead.

The 14-day Relative Strength Index (RSI) has dipped below 40.00, suggesting growing bearish momentum. If the RSI holds below this threshold, further downside pressure is likely.

Key support lies at the June 23 low of 1.3370. On the upside, resistance is seen near the multi-year high around 1.3800, which will act as a strong barrier to any potential rebound. Until bullish momentum returns, the path of least resistance for GBP/USD appears tilted to the downside.