British Pound Double-Teamed By Soft CPI And A Hawkish Fed

The British Pound (GBP) spent Wednesday absorbing blows from both sides of the Atlantic. Softer than expected UK inflation set a heavy tone in the morning, and Kevin Warsh's hawkish first Federal Reserve (Fed) decision finished the job in the evening. GBP/USD had been drifting near 1.3400 into the announcement and then collapsed close to 140 pips, tearing through 1.3350 and the 1.3300 handle to a session low near 1.3250 before steadying just below the figure.

The inflation miss that started it

The morning's Consumer Price Index (CPI) gave the Pound its first knock, with the May reading rising just 0.2% on the month against expectations of 0.4% and core annual inflation easing to 2.6% from a forecast 2.7%. Headline annual inflation held at 2.8%, so this was a miss rather than a collapse, but it was enough to nudge Bank of England (BoE) cut expectations and leave Sterling soft into the US session.

Then the Fed turned the screw

The Federal Open Market Committee (FOMC) held its target range at 3.50% to 3.75% on a unanimous 12 to 0 vote, a stark change from April's fractured 8 to 4 split, and deleted the easing bias. The Summary of Economic Projections (SEP) supplied the shock, lifting the median 2026 federal funds projection to roughly 3.8% from 3.4% and flipping the next move from a cut to a hike, after the 2026 Personal Consumption Expenditures (PCE) inflation projection blew out to 3.6% from 2.7%.

Warsh rewrites the rulebook

Warsh then used his first press conference to telegraph a sweeping communications overhaul. He floated holding press conferences only when the Fed has something to say, warned markets to expect changes to the SEP and the central bank's reporting by year-end, and appears to have withheld his own dot, the package of a Chair determined to wean the Fed off forward guidance. Treasury yields rose and the Dollar firmed across the board as he spoke.

September, then January

Rate pricing turned decisively hawkish. According to the CME FedWatch tool, a first Fed hike is now priced for September, where a 25 basis point increase is the most likely single outcome, and the curve leans toward a second hike by January. With the next couple of meetings treated as near-certain holds, the question has shifted entirely to the pace of tightening, a powerful tailwind for the Dollar against the Pound.

The Bank of England has the last word

Unlike the US, the UK calendar is busy into the weekend, and Thursday belongs to the BoE. The decision at 11:00 GMT is expected to leave Bank Rate at 3.75%, so the vote split is the real event; the consensus looks for two members to back a hike against one previously, a hawkish drift that today's soft CPI may complicate. UK labour data lands earlier on Thursday and retail sales close the week on Friday, giving Sterling plenty of domestic risk even as the US goes quiet.

Resistance: The 1.3300 handle the pair lost now caps the bounce, with 1.3350 the next barrier on any recovery.

Support: The session low near 1.3250 is the first floor, and a break there opens the 1.3200 handle.

Bias: Bearish, with the BoE the swing factor. A more hawkish vote split could spark a relief bounce, but soft UK inflation and a freshly hawkish Fed leave the path of least resistance lower while price holds below 1.3300.