Pound Sterling Holds Firm as Fed Awaits Tariff Impact on Inflation

Pound Sterling is maintaining a firm grip on its recent gains, trading near the 1.3650 mark against the US Dollar during Wednesday’s European session. This resilience follows news of a ceasefire agreement between Israel and Iran, which has eased geopolitical tensions and reduced demand for the safe-haven greenback. As a result, the US Dollar Index (DXY) continues to hover near its weekly low around 98.00, reinforcing the strength of the GBP/USD pair.

Comments from Federal Reserve Chair Jerome Powell during his semi-annual testimony have not provided much support to the US Dollar. Powell emphasized the need for more time to assess how recent tariff changes might influence inflation trends. While this cautious stance has left the Dollar under pressure, it has indirectly contributed to the relative stability of the Pound Sterling in global currency markets

BoE’s Bailey Flags Concerns Over UK Labor Market

Pound Sterling remained relatively steady against major global currencies even as Bank of England Governor Andrew Bailey cautioned about emerging softness in the UK labor market. During his testimony to the Lords Economic Affairs Committee, Bailey indicated that wage growth may slow, and higher employer contributions to social security are beginning to weigh on employment conditions. His remarks followed last week’s decision to maintain interest rates at 4.25%, where the central bank emphasized monitoring both upside inflation risks and downside labor market challenges.

Recent employment data supports Bailey’s outlook, with job vacancy figures from recruitment platform Indeed showing a 5% decline in mid-June compared to late March. These signs of a cooling labor market could influence future monetary policy decisions, though for now, the Pound Sterling has shown resilience in the face of these headwinds.

Market Eyes US Inflation Data as GBP/USD Remains Elevated

The near-term direction for the Pound Sterling may hinge on upcoming US data, particularly the May Personal Consumption Expenditures (PCE) Price Index due Friday. As the Fed’s preferred inflation metric, any significant uptick—especially in the core reading excluding food and energy—could reignite Dollar strength and challenge the current bullish tone in GBP/USD.

Until then, the Pound Sterling appears well-supported by a combination of Dollar weakness, geopolitical relief, and cautious central bank outlooks. Will this momentum carry it beyond recent highs, or will US data shift the balance?

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