GBP/USD recovery stalls above 1.3450 with all eyes on the Fed

• The Pound loses steam with the US Dollar steady ahead of the Fed.
• UK CPI figures reveal steady inflationary pressures in May.
• The Fed statement and the economic and interest rate projections are likely to increase USD volatility later today.

British Pound's recovery attempts from Tuesday's lows near 1.3400 have stalled about 50 pips higher on Wednesday's European session. Investors are wary of placing US Dollar's directional bets ahead of the ªFederal Reserve's monetary policy decision.

Earlier today, the Pound reacted with a moderately bullish tone to the release of May's Consumer Prices Index figures, which revealed that rising food prices have offset the decline in transport costs, keeping the overall inflation fairly steady.

Monthly inflation eased to 0.2% in May from 1.2% in April, while the year-on-year rate eased to 3.4% from 3.5%, in line with the market's expectations. Core inflation eased to 3.5% from 3.8%, beyond the 3.6% rate forecasted by the analysts.

Geopolitical tensions are gripping markets

Market sentiment remains sour, with investors increasingly wary that the Israel-Iran war might escalate with the involvement of the US. Trump's threats to Tehran have been responded to by the Iranian ambassador to the US, driving the situation to the boiling point and hammering investors' appetite for risk.

In this context, the focus turns to the US Federal Reserve, which is widely expected to leave interest rates on hold but will publish new economic and interest rate projections that might help investors to assess the bank's rate-cutting calendar.

Previous economic projections have downgraded the GDP growth expectations for 2025 to 1.7% from 2.1% and PCE inflation to 2.5/ from 2.7%. March's summary also projected between 25 and 50 bps further cuts for the rext of the year. Any changes to these figures are likely to have a significant impact on the USD.