• GBP/USD trades just beneath the 1.3400 handle, surrendering the whole of a CPI spike that stalled ahead of 1.3450.
• US inflation fell 0.4% MoM in June, the largest monthly decline since April 2020, and the Fed Chair still refused to declare victory.
• The 200-day EMA caps the recovery for a second straight week while Thursday's UK growth data threatens the Sterling side of the ledger.

Cable trades just beneath the 1.3400 handle late in Tuesday's session, pinned under a 200-day Exponential Moving Average (EMA) that sits a few pips shy of the figure and has capped every recovery attempt for two weeks. The softest US inflation report in six years landed at 12:30 GMT; the pair spiked to within a few pips of 1.3450 and has since handed the entire move back.

Tuesday's rejection carries more weight than one headline normally earns: the bounce from early July's trough near 1.3150 has run directly into the falling 200-day average, the daily Stochastic Relative Strength Index is stretched above 80, and Sterling must now explain why the best inflation news the Dollar could hand it was worth roughly four hours of gains.

A deflation print bought by a ceasefire that no longer exists

June's Consumer Price Index (CPI) fell 0.4% on the month, the largest monthly decline since April 2020, dragging the annual rate to 3.5% from May's 4.2%. The core measure printed flat against a 0.2% consensus and eased to 2.6% YoY. The engine was energy: gasoline slid 9.7% in June after the ceasefire signed last month knocked roughly a quarter off Crude Oil.

The catch, and the reason the move faded, is that the report is already a period piece. Washington and Tehran are trading strikes again, the Strait of Hormuz sits effectively shut behind a reimposed blockade, and Crude Oil has clawed back roughly 10% in July. Tightening bets that a weak 57K payrolls print washed out at the start of the month are being rebuilt while the strait stays dark.

The Fed Chair reached the same verdict across both of Tuesday's testimony slots (12:30 and 14:00 GMT), telling lawmakers that one good report proves nothing and recommitting to the 2% target. A sitting Fed Governor had already spent Monday promising to vote for an immediate hike if core misbehaved.

Rate futures took the hint without abandoning the plot: hold odds for this month's meeting jumped toward 86%, yet pricing still assigns roughly seven-in-ten odds to at least one hike by year-end and nothing to a cut. That mix pulled the Dollar off its lows and the Pound off its highs through the New York afternoon.

Sterling's home front offers no rescue

The Bank of England is running its own version of the same movie. Bank Rate has held at 3.75% since December; June's decision split 7-2, with two members demanding an immediate move to 4.00%. The Governor has spent the summer calling cuts off the table while July's 13% energy price cap increase works through household bills, and the Bank itself projects inflation, 2.8% now, back above 3.5% by year-end.

Tuesday evening layers politics on top: the Governor is using the Mansion House address (20:00 GMT) to press the incoming Burnham government on growth and fiscal discipline, a reminder that the Labour handover remains a background risk for Sterling rather than a resolved story. A currency this sensitive to risk appetite, with the Strait of Hormuz on every front page, does not get to rally durably on someone else's soft inflation data.

The rest of the week gets a vote

Wednesday's Producer Price Index (12:30 GMT) is the quiet threat: the core measure is seen accelerating to 5.2% YoY from 4.9%, which would tell Fed officials that pipeline pressure never received the ceasefire memo. The Fed Chair returns for a second day of testimony at 14:00 GMT, the Beige Book follows at 18:00 GMT, and the Bank of England's chief economist takes a turn at 10:30 GMT.

Thursday hands the microphone to the Pound briefly, with May's Gross Domestic Product print landing at 06:00 GMT against consensus of 0.1% growth after a 0.1% contraction; industrial and manufacturing production are forecast to shrink. US Retail Sales follow at 12:30 GMT, seen slowing to 0.2% MoM from 0.9% with the ex-autos reading at -0.1%. A limp UK number set against US demand that is cooling rather than cracking is the mix that has kept the pair beneath the 200-day EMA all month.

Friday caps the week with July's preliminary Michigan consumer sentiment at 14:00 GMT, forecast at 51 from 49.5, alongside the survey's one-year and five-year inflation-expectation reads. Fed speakers have made a habit of citing those series when arguing that a shut Hormuz can still un-anchor household price psychology, so a hot expectations number would complete the CPI unwind.

Technical levels

Resistance: The 200-day EMA a few pips beneath 1.3400 is the immediate ceiling, with Tuesday's rejection zone ahead of 1.3450 stacked behind it; the pair has no business discussing 1.3500 without a fresh catalyst.

Support: The 1.3350 region is first, where the intraday base and the 50-day EMA converge; below that sits 1.3300, with early July's trough near 1.3150 the last line of defence.

Bias: Lower. A pair that cannot clear its 200-day EMA on the best US inflation news since 2020, with the daily oscillator stretched above 80, is a pair waiting to be sold; the path of least resistance runs to 1.3350 and then 1.3300 unless buyers force a daily close above the average and through 1.3450.

GBP/USD daily chart