GBP/USD Forecast: Soft UK Inflation Offsets US Dollar Caution Ahead of Fed

Modified: Wednesday, 17 June 2026 20:01 BST - Written by James Fuller

STORY LINK GBP/USD Forecast: Soft UK Inflation Offsets US Dollar Caution Ahead of Fed

The Pound US Dollar (GBP/USD) exchange rate lacked clear direction during Wednesday’s European trading session as investors refrained from making significant moves ahead of the latest policy announcement from the Federal Reserve.

At the time of writing, GBP/USD was trading at around $1.3414, showing little movement from the day’s opening levels.

The US Dollar (USD) traded in a narrow range on Wednesday as markets looked ahead to the Federal Reserve’s interest rate decision later in the day.

Although policymakers are widely expected to leave borrowing costs unchanged at June’s meeting, the ‘Greenback’ has remained relatively well supported in recent sessions despite signs of improving relations between the US and Iran.

This resilience has largely been driven by speculation that the Fed may still adopt a firmer monetary policy stance later this year.

Should Federal Reserve Chair Kevin Warsh signal that policymakers remain concerned about inflationary pressures, the US Dollar could attract fresh support.

Conversely, any indication that the central bank is becoming more comfortable with the inflation outlook may weigh on USD sentiment.

The Pound (GBP) struggled to gain momentum on Wednesday following the publication of the UK’s latest inflation figures.

Data released earlier in the session revealed that consumer price inflation held steady at 2.8% in May, missing expectations for an acceleration to 3%. Meanwhile, core inflation rose from 2.5% to 2.6%, also falling short of forecasts for a 2.7% reading.

The softer inflation print encouraged investors to trim expectations for additional tightening from the Bank of England (BoE). Some market participants have even begun to speculate that the central bank’s next move could eventually be a rate reduction rather than an increase, particularly as tensions in the Middle East appear to be easing.

Near-Term GBP/USD Forecast: Can Political and Central Bank Risks Drive Market Movement?

Looking ahead, Pound investors face a busy end to the week, with both the Bank of England’s latest policy decision and the closely watched Makerfield by-election likely to influence Sterling sentiment.

While the BoE is also expected to leave interest rates unchanged, policymakers may emphasise ongoing concerns surrounding the UK’s economic outlook. Any guidance that further dampens expectations for future rate increases could leave Sterling vulnerable.

Political developments may also come into focus as the Makerfield by-election draws near. The contest is being closely monitored due to its potential impact on the Labour government, with a victory for Andy Burnham likely to strengthen speculation surrounding a future leadership challenge against Prime Minister Keir Starmer.

Meanwhile, for US Dollar investors, developments in the Middle East are expected to remain a key consideration. Continued optimism surrounding a potential US-Iran peace agreement may limit demand for the safe-haven currency and cap gains in the ‘Greenback’.

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TAGS: Pound Dollar Forecasts