• GBP/USD retreats to 1,3390 from session highs near 1.3420.
• Market concerns about the consequences of the escalating Middle East tensions are boosting the US Dollar's recovery.
• The Greenback took a hit on Tuesday as US CPI cooled hopes of immediate Fed rate hikes.

The British Pound (GBP) has retraced previous gains against the US Dollar (USD) on Wednesday, returning to the 1.3390 area from session highs of 1.3420 and turning negative on the daily chart. The safe-haven US Dollar has bounced up during the London session amid the risk-averse sentiment as US and Iran escalate their threats following the resumption of hostilities.

Risk aversion is weighing on the Pound on Wednesday with tensions in the Middle East simmering and Oil prices 17% above early July highs. Iranian authorities said that 30 people have been killed in the latest round of US strikes, and US President Trump has threatened to target civilian infrastructure, including power plants.

Iran’s Islamic Revolutionary Guard Corps (IRGC), in turn, threatened to block other energy routes and halt all Middle East energy exports, in response to the US blockade of Iranian ports.

Soft US inflation data cools Fed tightening expectations

These tensions have offset the US Dollar’s weakness seen in Tuesday's and Wednesday’s Asian sessions, as softer-than-expected US Consumer Price Index (CPI) figures dampened expectations that the US Federal Reserve might hike interest rates as soon as July.

Later on the day, the focus will shift to the US Producer Prices Index (PPI) figures, to confirm with markets looking for confirmation of the disinflationary trend pointed by Tuesday’s CPI data.

In the UK, Andrew Burnham has practically confirmed his nomination as the new leader of the Labour Party, with the backing of 349 MPs. He still needs the support from at least three organisations of the Labour Party, but this will not be an obstacle, as it is mathematically impossible for a rival to beat him.

After that, the former mayor of Manchester is expected to be nominated as Prime Minister on July 20. Markets remain calm about it, especially after his efforts to convey a responsible fiscal policy, which has contributed to the 2% GBP/USD appreciation since the former Prime Minister, Keir Starmer, stepped down in late June.