GBP/USD holds losses near 1.3400 ahead of BoE’s policy decision

• GBP/USD depreciates due to heightened safe-haven demand amid the rising Israel-Iran conflict.

• The Federal Reserve kept the policy rate unchanged at the 4.25%–4.50% range in June.

• The US Dollar appreciated as Fed Chair Powell signaled that inflation could rise in the upcoming months.

GBP/USD remains subdued for the third consecutive session, trading around 1.3410 during the Asian hours on Thursday. The pair faces challenges as the US Dollar (USD) gains ground amid increased safe-haven demand, driven by escalating tensions between Israel and Iran. Moreover, the Bank of England (BoE) is widely expected to keep its interest rates unchanged on Thursday.

In the United Kingdom (UK), CPI inflation eased to 3.4% year-over-year in May, as expected from the 3.5% in April. However, the reading remains well above the BoE’s 2% target. However, markets are still pricing in around 48 basis points of rate cuts through the end of the year.

Bloomberg reported on Thursday that “US officials prepare for possible Iran strike in coming days.” “The US plans for any Iran attack continue to evolve.” Another report from the Wall Street Journal suggests that US President Trump had approved attack plans on Tuesday for Iran, but wanted to see if Tehran would abandon its nuclear program.

Additionally, the Greenback received support from Fed Chair Jerome Powell’s comments, signaling that inflation remains somewhat above goal and could rise in the future, citing the impact of US President Donald Trump’s tariffs. Powell also supported the current policy stance that leaves them well-positioned. He highlighted that ongoing policy uncertainty will keep the Fed in a rate-hold stance, and any rate cuts will be dependent on labor and inflation data.

The US Federal Reserve (Fed) decided to keep the policy rate unchanged at the 4.25%–4.50% range at its June meeting on Wednesday, as widely expected. The Federal Open Market Committee (FOMC) still sees around 50 basis points of interest rate cuts through the end of 2025.