British Pound consolidates below 1.3400 vs USD amid fresh Iran tensions, ahead of US CPI

The GBP/USD pair struggles to capitalize on its recovery gains recorded over the past two days, from a three-week low, and oscillates in a narrow band during the Asian session on Wednesday. Spot prices currently trade around the 1.3365-1.3370 area, nearly unchanged for the day, as traders opt to wait for further developments surrounding the Middle East crisis and the release of the latest US consumer inflation figures.

The US military launched strikes against Iran, as ordered by US President Donald Trump, in retaliation for the shooting down of an American helicopter in the Strait of Hormuz. Adding to this, Iran's Foreign Minister Abbas Araghchi warned the US to leave the region or face consequences, and said that Iran's armed forces would not leave any attack or threat unanswered. Adding to this, the lack of progress in US-Iran negotiations tempers hopes for a peace deal and keeps geopolitical risks in play, which is seen benefiting the US Dollar's (USD) relative safe-haven status and acting as a headwind for the GBP/USD pair.

The USD bulls, however, seem hesitant ahead of the US Consumer Price Index (CPI) report, due later today. The crucial data will play a key role in influencing market expectations about the US Federal Reserve's (Fed) future policy path and drive the USD demand in the near term. In the meantime, traders have been pricing in the possibility that the Fed will hike interest rates by the end of this year amid worries that the war-driven rise in energy prices would rekindle inflationary pressures. This turns out to be another factor that continues to support the buck and contributes to capping the upside for the GBP/USD pair.

The British Pound (GBP), on the other hand, struggles to attract any meaningful buyers amid domestic political uncertainty. In fact, UK Prime Minister Keir Starmer's authority has been severely shaken following the resignations of junior ministers. This, to a larger extent, offsets expectations for at least one 25-basis-point (bps) interest rate hike by the Bank of England (BoE) by year-end 2026. Moreover, the overnight failure near the 1.3400 mark, ahead of a technically significant 200-day Simple Moving Average (SMA), warrants some caution before positioning for further appreciation for the GBP/USD pair.