British Pound holds steady above 1.3500 vs USD as traders eye US CPI ahead of UK GDP

• GBP/USD struggles to gain any meaningful traction ahead of the key US-UK macro releases.
• The US CPI is due later this Wednesday, followed by the UK GDP and US PPI on Thursday.
• Geopolitical risks and Fed-hike bets underpin the USD, capping the upside for spot prices.

The GBP/USD pair extends its sideways consolidation around the 1.3500 psychological mark through the first half of the European session on Wednesday. Traders opt to wait on the sidelines ahead of important macro data from the US and the UK.

The crucial US Consumer Price Index (CPI) report is due later today, followed by the preliminary Q2 GDP figures from the UK and the US Producer Price Index (PPI) on Thursday. In the meantime, hawkish US Federal Reserve (Fed) expectations might continue to underpin the US Dollar (USD) and cap GBP/USD.

Strategists at Deutsche Bank highlight how finely poised Fed expectations remain ahead of the latest US inflation releases, noting that “futures this morning are pointing to a 51% chance of a September hike.” They add that the current balance of risks could shift quickly, as “if we do get an upside or downside surprise today, that could help shift the balance one way or the other,” underscoring how sensitive Dollar pricing is to incoming data at this stage of the policy cycle.

According to the CME Group's FedWatch Tool, traders are currently pricing in over a 75% chance that the US central bank will raise borrowing costs by the year-end amid inflation risks stemming from volatile oil prices. Furthermore, the US-Iran standoff over the Strait of Hormuz lends additional support to the safe-haven buck.

An advisor to Iran’s Supreme Leader Mojtaba Khamenei said on Tuesday that the Strait of Hormuz will not be opened until the US meets Tehran's demands. Moreover, Iran-backed Houthis in Yemen escalated attacks on vessels in the Red Sea and Bab el-Mandeb Strait, targeting Saudi ships, leading to increased war-risk premiums.

The aforementioned fundamental backdrop favors USD bulls and warrants caution before positioning for an extension of the GBP/USD pair's recent move up witnessed over the past two weeks or so. However, the recent breakout through the 1.3500 mark suggests that the path of least resistance for spot prices remains to the upside.