Unexpectedly weak US inflation data in June prompted markets to reassess the Federal Reserve's future monetary policy path, leading to a continued decline in the US dollar index. This pushed the pound sterling up to around 1.3420 against the dollar in Asian trading on Wednesday, marking its second consecutive day of gains. Meanwhile, rising market expectations for further monetary tightening by the Bank of England also enhanced the pound's relative attractiveness. Data released by the U.S. Bureau of Labor Statistics showed that the Consumer Price Index (CPI) rose 3.5% year-on-year in June, lower than the market expectation of 3.8% and significantly lower than May's 4.2% ; month-on-month, it fell 0.4% , a significant decline from May's 0.5% increase, indicating signs of easing overall inflationary pressures in the U.S. Core inflation, excluding food and energy prices, also cooled, further strengthening market expectations of a slowdown in U.S. price increases. Following the release of the inflation data, the dollar index weakened, and U.S. Treasury yields fell in tandem, suggesting a reduced need for the Federal Reserve to further tighten monetary policy in the short term, providing support for non-U.S. currencies, including the British pound. However, the dollar's decline was still somewhat limited by safe-haven demand. Recent escalation of tensions between the U.S. and Iran has raised concerns about shipping security in the Strait of Hormuz and the stability of global energy supplies. The Strait of Hormuz handles approximately 20% of global seaborne crude oil transport ; geopolitical risks have driven international oil prices higher, reigniting concerns about a global inflation rebound. Rising energy prices suggest that inflation may face renewed upward pressure in the future, leading the market to believe that the Federal Reserve may maintain its high-interest-rate policy for longer than previously expected. The latest market estimate is that there is approximately a 50% probability of a further rate hike by the Fed in September. While this is an adjustment from previous more aggressive expectations, the overall policy remains restrictive, which to some extent limits further downside for the dollar. In contrast, the pound sterling has received significant support from expectations of a Bank of England policy increase. With rising international energy prices, investors believe that the pace of decline in UK inflation may slow, and the Bank of England will need to maintain a relatively tight monetary policy to prevent a resurgence of price pressures. The market has already fully priced in the expectation of another rate hike by the Bank of England in September and anticipates two more rate hikes in 2026 , widening the interest rate expectation gap between the UK and the US, providing favorable conditions for the pound's performance. Currently, the market is awaiting subsequent economic data, such as the US June Producer Price Index (PPI), to further assess whether US inflation continues to improve. If PPI continues to fall short of market expectations, the Fed's short-term policy expectations may further shift towards a more dovish stance, potentially putting continued pressure on the dollar. Conversely, if production-side inflation rebounds, it could strengthen market expectations that the Fed will maintain high interest rates, limiting further gains in the pound. Technically, the pound/dollar pair has re-established itself above the 1.3400 level on the daily chart and is trading near key moving averages, with the overall trend gradually shifting from a correction to a slightly bullish consolidation. If the exchange rate breaks through the resistance near 1.3450 , it could test the 1.3500 and 1.3560 areas. Initial support is at 1.3360 , with further support around 1.3300 . Daily momentum continues to improve, with bullish forces strengthening, but a breakout of key resistance areas remains crucial in the short term. The 4-hour chart shows the pound/dollar pair oscillating higher along short-term moving averages, with the moving average system gradually forming a bullish alignment, maintaining a complete short-term rebound trend. Momentum indicators remain in positive territory, but as the exchange rate approaches previous highs, some profit-taking pressure may emerge around 1.3450 . If the price breaks through this level, the upward trend is expected to continue in the short term; if it falls below 1.3360 , it may retest the support area of 1.3300 or even 1.3250 . Overall, the short-term trend will remain volatile with a slight upward bias. Editor's Summary: US June inflation data fell short of market expectations across the board, weakening the dollar and driving a sustained rebound in the pound against the dollar. Meanwhile, the Middle East situation led to higher international oil prices, strengthening market expectations for further interest rate hikes by the Bank of England, providing fundamental support for the pound. However, rising energy prices could also push up future US inflation, prompting the Federal Reserve to maintain high interest rates for a longer period, thus limiting the dollar's decline. Going forward, the market will focus on US PPI, retail sales, and UK inflation and employment data. If the Bank of England continues to send hawkish signals while US inflation remains subdued, the pound/dollar exchange rate is likely to maintain a volatile but generally upward trend, but market volatility caused by changes in geopolitical situations and policy expectations should be closely monitored.