GBP/USD Weakens, Ahead of US Inflation Data
The British pound weakened, with GBP/USD dropping to around 1.3590 during the Asian session on Tuesday (May 12), remaining below 1.3600. The weakening occurred as markets weighed a combination of US data and rising geopolitical uncertainty, which tends to favor the dollar.
Today's main focus is the release of US consumer inflation (CPI) for April. The so-called market consensus points to a headline CPI of 3.7% yoy (from 3.3% in March) and a core CPI of 2.7% yoy (from 2.6%), with the risk of a hotter reading potentially reinforcing the narrative of higher interest rates for longer.
On the geopolitical front, US-Iran tensions have returned to the fore after US President Donald Trump reportedly grew increasingly frustrated with the progress of talks. Several reports suggested Trump was considering the option of resuming major combat operations, while Iran asserted its readiness to respond to further attacks, maintaining demand for the dollar as a safe-haven asset.
Additional pressure on the pound came from domestic factors. British Prime Minister Keir Starmer faces increasing pressure on his leadership after election results in various regions hit the Labour Party hard, while rising gilt yields have added to the noise in the local market.
With these two sources of risk acting concurrently, the GBP/USD direction is potentially more sensitive to surprises in CPI data and the dynamics of global risk sentiment. The market will be monitoring US inflation figures, the latest US-Iran developments, as well as UK political stability and gilt yield movements for further determinants. (asd)
