GBP/USD rose to 1.3403 on Wednesday as UK politics moved to the front of investors' minds ahead of a change of prime minister. Traders are also weighing Middle East tensions, higher oil prices, and firmer Bank of England rate-hike expectations.
The pound climbed to 1.3403 against the dollar on Wednesday, with British politics taking centre stage for investors. Markets are assessing the upcoming leadership change, with Andy Burnham set to take office as prime minister on 20 July.
Attention is also turning to who will become the new Chancellor of the Exchequer. In betting markets, Ed Miliband is considered the favourite, a candidate investors perceive as a supporter of more active fiscal spending.
Middle East risk feeds into rate expectations
At the same time, traders are watching escalating tensions in the Middle East, rising oil prices, and increased inflation risks. The United States has continued its strikes on Iran after Donald Trump restored a naval blockade on Iranian shipping and proposed a 20% fee to cover the costs of securing the Strait of Hormuz.
Against that backdrop, markets have strengthened expectations of further rate hikes from the Bank of England. Investors are now almost fully pricing in two rate increases in 2026, with a September hike already largely reflected in quotes.
US inflation eases Fed pressure
In the US, weaker-than-expected inflation data for June has eased pressure on the Federal Reserve. However, Christopher Waller warned that the regulator could tighten policy again if inflation stays above the 2% target.
Technically, the pair is shaping a growth wave, with scope towards 1.3451 before a possible pullback.
Source: FXStreet
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