HG MARKETS:

The Pound Sterling (GBP) edged lower on Wednesday, trading around 1.3490 against the US Dollar (USD) during European trading hours. The GBP/USD pair slipped slightly as the US Dollar held steady ahead of the release of key U.S. inflation data for May. The US Dollar Index (DXY), which measures the dollar’s strength against a basket of six major currencies, hovered near the 99.00 level, reflecting investor caution ahead of the economic release.

Attention is now firmly on the upcoming U.S. Consumer Price Index (CPI) data, set to be published at 12:30 GMT. Analysts expect headline inflation to have risen to 2.5% annually in May, compared to 2.3% in April. Meanwhile, core CPI—excluding food and energy—is forecast to climb to 2.9% from the previous 2.8%. On a monthly basis, headline and core inflation are projected to rise by 0.2% and 0.3%, respectively.

If the data comes in hotter than expected, it may reinforce the Federal Reserve’s stance on keeping interest rates unchanged for now. A pickup in inflation would support arguments for policy caution, especially amid broader economic uncertainty. Markets are closely watching how the Fed responds, as inflation trends could shape the central bank’s next moves.

Even if inflation data surprises to the downside, Fed officials are unlikely to pivot toward early rate cuts. Concerns over de-anchoring inflation expectations, particularly under the tariff-heavy policy direction of President Donald Trump, are prompting a more conservative approach. This uncertainty continues to cloud the outlook for U.S. monetary policy.

On the international front, trade relations between the U.S. and China have shown modest improvement. A two-day meeting in London ended on a positive note, with U.S. Secretary of Commerce Howard Lutnick expressing optimism that both countries are working toward rolling back export restrictions. While this eased some concerns in global markets, investors are still awaiting concrete outcomes from the talks.

In the UK, the Pound remains under pressure following a sell-off triggered by weak labor market data released on Tuesday. The Office for National Statistics reported that the UK unemployment rate rose to 4.6%, the highest since July 2021, while job demand slowed and wage growth moderated. These developments have increased the likelihood of a Bank of England rate cut as early as August. Investors are now turning their attention to UK GDP and manufacturing data due Thursday, which is expected to show a 0.1% contraction in April after a 0.2% expansion in March.