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GBP trades flat as cooling UK inflation, Iran tensions cap upside

  • GBP/USD flatlines near 1.3435 in Thursday’s Asian session. 
  • The headline UK CPI slowed sharply to 2.8% YoY in April from 3.3% in March, missing the forecast.
  • Trump said negotiations with Iran are in the final stages but warned of attacks if the deal fails.

The GBP/USD pair holds steady around 1.3435 during the Asian trading hours on Thursday. However, a sharp slowdown in UK inflation and uncertainty surrounding US–Iran talks could weigh on the British Pound (GBP) against the US Dollar (USD). Traders await the preliminary readings of the Purchasing Managers’ Index (PMI) for May from the UK and the US, which are due later on Thursday. 

The UK headline Consumer Price Index (CPI) inflation eased to 2.8% over the year in April from 3.3% in March, the Office for National Statistics (ONS) showed on Wednesday. This figure came in softer than the expectation of 3.0%. Additionally, the core CPI, excluding volatile food and energy items, rose 2.5% year-over-year in April, versus 3.1% prior and below the market consensus of 2.6%. 

This UK inflation data, combined with an unexpected rise in the Unemployment Rate to 5.0%, prompted traders to scale back expectations for future Bank of England (BoE) rate hikes by December. UK rate futures pointed to around 52 basis points (bps) of BoE policy tightening by December, versus about 60 bps on Tuesday, according to Reuters. 

US President Donald Trump said on Wednesday that negotiations with Iran were in the final stages, while warning of further attacks unless Iran agrees to a deal. Meanwhile, Iranian President Masoud Pezeshkian stated that Tehran was not on the brink of giving in and threatened to retaliate for any strikes with attacks beyond the Middle East. Ongoing tensions between the US and Iran could lift the Greenback and act as a headwind for the major pair in the near term. 

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Rupee Slides as Oil and US Yields Surge

The Indian rupee hovered near 96.1 per dollar, after touching successive record lows in recent sessions, weighed down by rising US Treasury yields, surging crude oil prices, and a broader risk-off mood in global markets. Pressure on emerging-market currencies intensified as the benchmark 10-year US Treasury yield climbed to 4.6250%, while Brent crude rose nearly 2% to $111.34 per barrel amid stalled US–Iran diplomatic talks. Investor sentiment was further shaken by reports of an attack on a nuclear facility in the UAE and expectations that US President Trump could discuss military options on Iran. Traders expect the rupee to remain under pressure, with the RBI focused on curbing volatility rather than defending a specific exchange-rate level. Separately, investors assessed India’s unemployment rate rising to 5.2% in April 2026 from 5.1%, the highest since October, as elevated energy prices and disruptions in Persian Gulf shipping routes reduced purchasing power.

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CHF flatlines near multi-week low on Fed hike repricing

  • USD/CHF trades flat around 0.7870 in Monday’s early European session. 
  • Markets now see the next Fed interest rate move. 
  • Trump threatened Iran to “get moving” or there “won’t be anything left of them.”

The USD/CHF pair holds steady near 0.7870 during the early European session on Monday. The pair currently trades near the highest since April 30, bolstered by a stronger US Dollar (USD). Traders will closely monitor the developments surrounding the US-Iran conflicts. 

Hotter-than-expected US inflation reports released last week have led the market to price in potential US Federal Reserve (Fed) interest rate hikes later this year, supporting the Greenback. According to the CME FedWatch tool, financial markets are now pricing in nearly a 48.4% chance the Fed could hike rates by at least 25 basis points (bps) at its December meeting, compared with 14.3% a week ago. 

US President Donald Trump on Sunday warned Iran that the “clock is ticking” as talks to bring the war to an end have stalled. Meanwhile, Iranian media reported the US had failed to make any concrete concessions in its response to Tehran’s latest proposals to end the conflict.

A lack of compromise from Washington and signs of a prolonged conflict could lift the USD against the Swiss Franc (CHF) in the near term. RBC Capital Markets analysts noted that the USD is better shielded from global energy shocks than the CHF because the US operates as a net oil exporter. 

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GBP seems vulnerable near 1.3300 vs USD on Iran tensions, UK political turmoil

  • GBP/USD attracts sellers for the fifth consecutive day amid a combination of negative factors.
  • Rising Fed rate hike bets and renewed US-Iran tensions benefit the USD’s safe-haven status.
  • The UK political turmoil undermines the GBP and exerts additional pressure on spot prices.

The GBP/USD pair adds to last week’s heavy losses and remains under some selling pressure for the fifth consecutive day on Monday. Spot prices drop to the 1.3300 mark, or the lowest level since April 8, during the Asian session and seem vulnerable amid a broadly firmer US Dollar (USD).

Against the backdrop of rising bets for an interest rate hike by the Federal Reserve (Fed) in 2026, the risk of a further escalation of geopolitical tensions in the Middle East continues to underpin the safe-haven Greenback. In fact, US President Donald Trump warned Iran that the “clock is ticking” and that there “won’t be anything left” if action is not taken soon, adding that “time is of the essence.” Adding to this, the Times of Israel reported on Saturday that Israel and the US are actively advancing military preparations to potentially resume coordinated attacks against Iran.

Furthermore, major disagreements over Iran’s nuclear program and the Strait of Hormuz dampen hopes for a peace deal, lifting Crude Oil prices to a two-week top. This revives inflationary concerns and bolsters market expectations for a more hawkish Fed. According to the CME Group’s FedWatch Tool, traders are now pricing over a 50% chance that the US central bank will raise borrowing costs by the end of this year. The outlook, in turn, remains supportive of elevated US Treasury bond yields and further benefits the USD, which is seen weighing on the GBP/USD pair.

The British Pound (GBP), on the other hand, is pressured by domestic political uncertainty amid calls for UK Prime Minister Sir Keir Starmer to step down, following the ruling Labour Party’s hefty losses in the recent local elections. Moreover, UK Health Minister Wes Streeting’s resignation last Thursday points to a deepening crisis within the party, which, in turn, backs the case for a further near-term depreciating move for the Sterling and the GBP/USD pair.

Moving ahead, traders this week will confront the release of important UK macro releases, starting with monthly employment details on Tuesday. This will be followed by the latest consumer inflation figures on Wednesday, which will play a key role in influencing expectations about the Bank of England’s (BoE) interest rate path and provide some meaningful impetus to the GBP. The fundamental backdrop, however, seems tilted in favor of the GBP/USD bears.

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NZD holds losses below 0.5850 on weak Chinese data

  • NZD/USD softens to near 0.5830 in Monday’s Asian session. 
  • China’s Retail Sales rose 0.2% YoY in April; Industrial Production climbed 4.1% YoY in the same period. 
  • A surge in US inflation has triggered a shift in Fed expectations toward a rate hike. 

The NZD/USD pair trades in negative territory around 0.5830 during the Asian trading hours on Monday. The New Zealand Dollar (NZD) faces some selling pressure following the downbeat Chinese economic data. 

Data released by the National Bureau of Statistics (NBS) on Monday showed that China’s Retail Sales rose 0.2% YoY in April, compared to 1.7% in March. This figure came in weaker than the market expectations of 2.0%. 

Additionally, Industrial Production climbed 4.1% YoY in the same period, versus 5.7% prior, below the market consensus of 5.9%. The China-proxy Kiwi weakens after the release of the weaker Chinese economic data. 

On the USD’s front, traders raise their bets that the US Federal Reserve (Fed) will hike interest rates this year. Several Fed officials this week stated that keeping inflation pressures in check was a top priority, while others did not rule out the possibility that rate hikes may be needed if price pressures kept rising.

Markets are now pricing in nearly a 48.4% odds the Fed could hike rates by at least 25 basis points (bps) at its December meeting, compared with 14.3% a week ago, according to the CME FedWatch tool.

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AUD/USD remains subdued below 0.7150 following China’s data

  • Australian Dollar holds losses as China’s Retail Sales rose 0.2% YoY in April, against 2.0% expected and 1.7% prior.
  • Fed officials prioritized controlling inflation, suggesting further interest rate hikes remain necessary if price pressures persist.
  • The US Dollar finds safe-haven support as the US and Iran remain far from an agreement.

AUD/USD loses ground for the third consecutive day, trading around 0.7130 during the Asian hours on Monday. The pair depreciates following key economic data from Australia’s close trading partner, China.

China’s Retail Sales rose 0.2% year-over-year (YoY) in April vs. 2.0% expected and 1.7% in March. Chinese Industrial Production climbed 4.1% YoY in the same period, compared to the 5.9% forecast and 5.7% seen previously. Meanwhile, the Fixed Asset Investment came in at -1.6% year-to-date (YTD) YoY in April, weaker than the expected increase of 1.6%. The March reading was a rise of 1.7%.

The AUD/USD pair also loses ground as the US Dollar (USD) rises on the US Federal Reserve (Fed) shifting toward a more aggressive policy stance on inflation. Several Fed officials recently emphasized that controlling inflation is their top priority, even suggesting that further interest rate hikes could be necessary if price pressures persist. Financial markets have sharply increased the likelihood of a December rate hike to nearly 48%, up significantly from just 14% a week prior, according to the CME FedWatch tool.

Meanwhile, the Greenback is receiving support from increased safe-haven demand amid ongoing geopolitical conflicts. The United States (US) and Iran remain far from an agreement to end weeks of fighting and reopen the critical Strait of Hormuz shipping route.

US President Donald Trump escalated tensions by publicly warning Iran to make progress or face new consequences. Because the Strait remains effectively closed, global oil prices are continuing to climb, which places a heavy economic burden on countries that rely heavily on energy imports. Global investor anxiety is heightened further by warnings from Chinese leader Xi Jinping to President Trump that Taiwan could trigger direct clashes between their two economies.

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CAD hangs near one-month low vs bullish USD; rising Oil prices limit losses

  • USD/CAD stands firm near one-month top amid sustained USD buying interest.
  • Fed rate hike bets and geopolitical tensions benefit the USD’s safe-haven status.
  • Rising Oil prices underpin the Loonie and cap any further upside for spot prices.

The USD/CAD pair trades with a positive bias above mid-1.3700s during the Asian session on Monday, though it remains below a one-month top touched last Friday. A sustained US Dollar (USD) buying interest acts as a tailwind for spot prices while rising Crude Oil prices underpin the commodity-linked Loonie and cap further gains.

In a post on Truth Social, US President Donald Trump warned Iran on Sunday that the “clock is ticking” and that there “won’t be anything left” if action is not taken soon, adding that “time is of the essence.” Adding to this, the Times of Israel reported that Israel and the US are actively advancing military preparations to potentially resume coordinated attacks against Iran. This raises the risk of a further escalation of tensions in the Middle East, which, along with the effective closure of the Strait of Hormuz, lifts Crude Oil prices to a two-week high.

Meanwhile, elevated energy prices continue to fuel inflationary concerns and bolster market expectations for a more hawkish US Federal Reserve (Fed). In fact, the CME Group’s FedWatch Tool indicates that traders are currently pricing in over a 50% chance of a Fed rate hike by the end of this year. Apart from this, persistent geopolitical uncertainties lift the safe-haven USD to its highest level since April 7, offsetting the negative factors and supporting the USD/CAD pair. This, in turn, favors bulls and backs the case for further appreciation.

Moving ahead, there isn’t any relevant market-moving economic data due for release on Monday, either from the US or Canada. That said, fresh developments surrounding the Middle East crisis might continue to infuse volatility in the financial markets and drive Crude Oil prices. Furthermore, the USD price dynamics should contribute to producing short-term trading opportunities around the USD/CAD pair. The aforementioned fundamental backdrop, however, suggests that the path of least resistance for spot prices remains to the upside.

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Offshore Yuan Extends Fall on Weak Data

The offshore yuan weakened to around 6.81 per dollar on Monday, extending losses from the previous week as a series of weak economic data weighed on sentiment. New home prices across 70 major cities fell 3.5% year-on-year in April 2026, marking the sharpest pace of decline since May 2025, as existing stimulus efforts have yet to restore meaningful momentum in housing demand. Moreover, industrial output moderated to 4.1% year-on-year in April, marking the weakest expansion since July 2023, as disruptions linked to the Iran conflict weighed on manufacturing activity and export-oriented output. Retail sales growth also lost momentum, increasing just 0.2% year-on-year, the weakest performance since December 2022, highlighting subdued domestic consumption. On the labor front, China’s surveyed urban unemployment rate edged down to 5.2% in April from a more than one-year high of 5.4% in March, slightly better than market expectations and the lowest level since January.