British Pound nudges higher above 1.3350 despite Middle East turmoil
- GBP/USD edges higher to around 1.3385 in Thursday's Asian session.
- UK CPI inflation fell by more than expected to 2.6% in June.
- US launched fresh strikes as Iran warned of regional turmoil.
The GBP/USD pair rebounds to near 1.3385 during the Asian trading hours on Thursday. However, the potential upside for the major pair might be limited amid cooler-than-expected UK inflation data and escalating tensions in the Middle East. Traders will take more cues from the UK Retail Sales report, which is due later on Friday.
The UK headline Consumer Price Index (CPI) inflation slowed to 2.6% YoY in June, the lowest since March 2025, down from 2.8% in May, according to the Office for National Statistics (ONS) on Wednesday. This figure came in softer than the market expectations of 2.7% growth.
Meanwhile, the core CPI, excluding volatile food and energy items, rose 2.6% YoY in June, compared to 2.6% in the previous reading, hotter than the forecast of 2.5%. On a monthly basis, UK CPI inflation declined to 0.1% in June, down from 0.2% in May, in line with the market consensus.
Traders anticipate the Bank of England (BoE) to keep its benchmark interest rate at 3.75% next week as it continues to assess the impact of the Middle East conflict. Financial markets were pricing in one or possibly two quarter-point interest rate hikes by the end of 2026, little changed from Tuesday, according to Reuters.
The United States (US) has launched a 12th consecutive night of strikes against targets in Iran as Tehran threatened to launch more of its own attacks across the Gulf region. US President Donald Trump threatened to bomb a bridge or power plant for every ship targeted in the Strait of Hormuz.
On Thursday, Kuwait’s army said that it’s intercepting hostile drones, following several days of Iranian strikes on the country. Meanwhile, Iran’s semi-official Mehr reported that a location near Ahwaz was hit in a US missile strike. Rising tensions and signs of a prolonged conflict in the Middle East could boost a safe-haven currency such as the US Dollar (USD) against the British Pound (GBP) in the near term.
Pound Sterling FAQs
The Pound Sterling (GBP) is the oldest currency in the world (886 AD) and the official currency of the United Kingdom. It is the fourth most traded unit for foreign exchange (FX) in the world, accounting for 12% of all transactions, averaging $630 billion a day, according to 2022 data. Its key trading pairs are GBP/USD, also known as ‘Cable’, which accounts for 11% of FX, GBP/JPY, or the ‘Dragon’ as it is known by traders (3%), and EUR/GBP (2%). The Pound Sterling is issued by the Bank of England (BoE).
The single most important factor influencing the value of the Pound Sterling is monetary policy decided by the Bank of England. The BoE bases its decisions on whether it has achieved its primary goal of “price stability” – a steady inflation rate of around 2%. Its primary tool for achieving this is the adjustment of interest rates. When inflation is too high, the BoE will try to rein it in by raising interest rates, making it more expensive for people and businesses to access credit. This is generally positive for GBP, as higher interest rates make the UK a more attractive place for global investors to park their money. When inflation falls too low it is a sign economic growth is slowing. In this scenario, the BoE will consider lowering interest rates to cheapen credit so businesses will borrow more to invest in growth-generating projects.
Data releases gauge the health of the economy and can impact the value of the Pound Sterling. Indicators such as GDP, Manufacturing and Services PMIs, and employment can all influence the direction of the GBP. A strong economy is good for Sterling. Not only does it attract more foreign investment but it may encourage the BoE to put up interest rates, which will directly strengthen GBP. Otherwise, if economic data is weak, the Pound Sterling is likely to fall.
Another significant data release for the Pound Sterling is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought-after exports, its currency will benefit purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.
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