GBP/USD Faces Bearish Pressure as Inflation Cools and Fed Decision Nears
The GBP/USD pair hovered around 1.3452, recovering modestly after plummeting nearly 1.2% earlier this week to test lows at 1.3415, a level not seen in nearly a month. Despite the rebound, momentum signals a bearish shift. The RSI failed to reclaim the 50 level, sitting near 47, while the MACD line crossed below the signal line, suggesting the bullish momentum is evaporating as traders brace for two high-stakes monetary policy decisions from the Bank of England (BoE) and the Federal Reserve.
UK Inflation Deceleration Challenges Sterling Strength
May CPI data from the UK printed exactly as expected—headline CPI rose 3.4% YoY, while core CPI dipped to 3.5%, down from 3.8%. Monthly inflation cooled to just 0.2%, a sharp drop from April's 1.2% pace. Though technically in line with expectations, the trend suggests inflation is losing steam. Services inflation, often a key barometer for sticky pricing pressures, is projected to ease to 4.8% from the prior 5.4%, aligning with signs of wage growth deceleration. This weakens the case for hawkish BoE policy and places added weight on the vote split in Thursday’s decision.
Fed Holds Rates, But Dot Plot May Shift GBP/USD Outlook
The Federal Reserve is widely anticipated to hold its 4.25%–4.50% interest rate range. However, a hawkish revision in the dot plot, even by two members, could tilt expectations toward prolonged tightening. The dollar gained ground on safe-haven flows, further intensified by geopolitical instability as former President Trump escalated rhetoric against Iran. While markets price in two cuts for 2025, any signal that the Fed might reduce its forecast to one could pressure GBP/USD further below 1.3400 and expose the next support at 1.3376, followed by the 1.3300 psychological barrier.
Technical Breakdown Signals Reversal Risk for GBP/USD
Price action reflects mounting downside risk. The pair has broken beneath the 20-period SMA and tested the 1.3415 support zone. If this floor gives way, price could slip toward 1.3340 and 1.3300. Resistance sits at 1.3467, followed by 1.3500, with further upside needing a clean breakout above 1.3531 to retest 1.3600. Tuesday's move below the 10/20DMA and break of the 1.3444 Fibo floor confirmed a negative shift. Momentum is weakening, and the pair risks a transition from neutral to full bearish if upcoming central bank messaging disappoints.
Sterling Weakens Broadly Against Majors, Only Beats CAD
The British Pound posted broad weakness this week, losing -0.67% against the USD, -0.47% vs EUR, -0.49% vs JPY, -1.02% vs AUD, and -1.05% against NZD. GBP only managed a +0.15% gain versus the Canadian dollar, which was itself the weakest currency. This shows market sentiment against the pound remains tepid despite steady domestic data, with downside skewed as investors rotate toward safer currencies amid risk-off flows.
Macro Uncertainty and War Tensions Compound Sterling Risks
The Middle East conflict continues to drive volatility. With Trump threatening Iran directly, and the UK caught between central bank moderation and global geopolitical flare-ups, GBP/USD traders face heightened risk. Iran’s calls for Gulf state mediation signal potential diplomatic movement, but so far, that hasn’t tamed the dollar’s safe-haven bid. As long as these risks persist, upward moves in GBP/USD will remain capped unless macro data drastically beat expectations.
Trading Strategies Point to Tighter Ranges Ahead of Policy Events
Short setups near 1.3467, 1.3498, and 1.3518 remain valid as rejection levels, while long trades on dips to 1.3415 or 1.3395 could offer opportunities with tight stops. Scalpers may find brief windows, but sustained momentum seems unlikely ahead of the BoE and Fed. A sharp Fed surprise could reset directional flows entirely, but barring that, GBP/USD is trapped between fading inflation upside and geopolitical-driven dollar strength.
Is GBP/USD a Buy, Sell or Hold Now?
Given the technical breakdown, lack of bullish catalyst, and potential for hawkish surprises from the Fed, GBP/USD is a Sell below 1.3460. Only a firm reclaim of 1.3530 with bullish confirmation would change this stance. With downside targets at 1.3340, 1.3300, and even 1.3142 in view, the pound risks further retracement unless Thursday’s BoE commentary turns decisively hawkish.
