British Pound edges higher above 1.3400 on US-Iran peace optimism

The GBP/USD pair gathers strength to around 1.3430 during the early Asian trading hours on Wednesday, bolstered by Middle East peace hopes. Markets might turn cautious later in the day ahead of the UK Consumer Price Index (CPI) inflation data and the US Federal Reserve (Fed) interest rate decision.  

Two months of final negotiations will begin immediately after the initial deal between the US and Iran is signed on Friday. US President Donald Trump said the Strait of Hormuz could reopen on Friday, and Washington will allow Iran to immediately start selling oil and fuel again as part of the deal to end the war, per the Wall Street Journal. Hopes of a US-Iran peace deal could underpin the riskier assets, such as the British Pound (GBP) against the US Dollar (USD) in the near term. 

The Fed is widely expected to keep its benchmark interest rate steady at its June policy meeting on Wednesday, leaving the federal funds rate in a range of 3.5% to 3.75%. The focus will be on new Fed Chairman Kevin Warsh and the handling of the press conference that follows the central bank's policy statement. 

On the UK’s front, the Bank of England (BoE) is set to leave the interest rates unchanged at 3.75% on Thursday as Governor Andrew Bailey judges the UK central bank can take its time to assess if higher energy prices ‌from the Iran war will generate lasting inflation pressure.

 

Futures markets have previously priced in as many as three rate hikes by the Bank of England (BoE), but now expect no changes because of falling oil prices in June and the expectation of a peace deal in the Middle East, according to Morningstar.