HG MARKETS: 

The GBP/USD pair remained under pressure during Wednesday’s Asian trading session, struggling to sustain the previous rebound from the key psychological support level near 1.3500. Although the pair managed to recover slightly from a near two-week low in the prior session, bullish momentum remained limited as the US Dollar continued to draw strength from firm US inflation data, rising Federal Reserve rate expectations, and increasing geopolitical uncertainty in the Middle East.

Sterling sentiment also remained fragile due to growing political instability in the United Kingdom. Pressure intensified on Prime Minister Keir Starmer after reports emerged that more than 80 Labor MPs had expressed dissatisfaction with his leadership following disappointing local election results. The political uncertainty has raised concerns about policy direction and economic confidence in the UK, adding further downside pressure on the British Pound. Meanwhile, the US Dollar maintained its bullish footing after the latest inflation figures reinforced expectations that the Federal Reserve could keep interest rates elevated for longer. According to data released by the US Bureau of Labor Statistics, the headline Consumer Price Index (CPI) rose 3.8% year-over-year in April, marking the strongest annual increase since May 2023. Core inflation, which excludes volatile food and energy prices, also remained firm, rising 0.4% on a monthly basis and 2.8% annually.

The hotter-than-expected inflation data prompted investors to reassess the Federal Reserve’s policy outlook. Market participants are now pricing in increased probabilities that the Fed may consider another rate hike before the end of 2026 if inflationary pressures remain persistent. Higher interest rate expectations continue to support US Treasury yields and strengthen demand for the US Dollar.Federal Reserve officials have also maintained a cautious tone regarding inflation. Several policymakers recently emphasized that inflation remains above the central bank’s long-term target and warned that premature easing could risk reigniting price pressures. The Fed’s hawkish stance has therefore continued to provide additional support to the Greenback across the broader currency market.

Geopolitical developments have further boosted safe-haven demand for the US Dollar. Concerns resurfaced after tensions between the United States and Iran escalated again, reducing hopes for a near-term peace agreement. US President Donald Trump stated that the ceasefire with Iran was “on life support,” while Iranian officials reportedly rejected a US-backed proposal aimed at reducing military tensions and resolving disputes surrounding Tehran’s nuclear program and the strategically important Strait of Hormuz.The renewed geopolitical uncertainty has increased investor demand for defensive assets, with the US Dollar benefiting from its traditional reserve currency status. Market participants remain concerned that any escalation in Middle East tensions could disrupt global energy markets and fuel additional inflationary pressures worldwide.

Attention now turns toward the upcoming US Producer Price Index (PPI) report at 1730 HRS PKT, which could provide fresh insights into inflation trends at the wholesale level. Investors will also closely monitor comments from Federal Reserve officials and geopolitical headlines for further direction.