British Pound nudges higher above 1.3350 despite Middle East 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.