The US Dollar (USD) has maintained its recent gains, driven by escalating tensions between the US and Iran and expectations that energy-driven inflation could prompt the US Federal Reserve (Fed) to hike rates in 2026 [1]. This has acted as a headwind for the AUD/USD pair, which is consolidating near the 0.7000 psychological mark, struggling to break above the 38.2% Fibonacci retracement level at 0.7015 [1]. Technical indicators for AUD/USD remain supportive, with the Relative Strength Index (14) just above neutral and the MACD showing a positive reading, suggesting sustained buying interest as long as the pair stays supported on dips [1]. Key support levels are noted at 0.6955 (23.6% retracement), 0.6894 (200-day SMA), and 0.6857 (Fibonacci anchor), while resistance levels are at 0.7015, 0.7064 (50.0% retracement), 0.7113 (61.8% retracement), 0.7182, and 0.7271 [1].
Meanwhile, the GBP/USD pair has edged higher during the Asian session, rebounding from a one-week low at 1.3360, as the US Dollar paused its rally amid hopes for US-Iran diplomacy that could ease energy prices and temper hawkish Fed expectations [2]. However, the pair remains below the 1.3400 mark, with traders exercising caution ahead of the UK consumer inflation data and the fiscal policy roadmap from new Prime Minister Andy Burnham [2]. Rabobank strategists highlight market unease due to uncertainty around Burnham's fiscal plans, noting that his intention to use 'flexibility' within fiscal rules could keep market scrutiny elevated [2]. They also point to the UK's low savings ratio and large current account deficit as factors increasing the sensitivity of its debt market to negative news, despite not having the highest debt/GDP ratio among developed nations [2].
Both articles emphasize the influence of geopolitical risks, particularly the closure of the Strait of Hormuz and the naval blockade declared by Yemen's Iran-aligned Houthis against Saudi Arabia, which have pushed crude oil prices to their highest since June 12 and fueled inflation concerns [2]. These developments have reinforced expectations for at least one more Fed rate hike, supporting the US Dollar and impacting both AUD/USD and GBP/USD pairs [1][2].
Looking ahead, traders are awaiting the Australian June employment data and the UK Core Consumer Price Index (CPI) for further cues on central bank policy directions [1][2]. In the UK, investors are also focused on the upcoming 10-year fiscal plan from Prime Minister Burnham, expected later this year, which could have significant implications for the debt market [2].
CONCLUSION
The US Dollar's strength, underpinned by geopolitical tensions and inflation concerns, has weighed on both the AUD/USD and GBP/USD pairs. Market participants are closely monitoring upcoming economic data and fiscal policy announcements for further direction, with central bank policy expectations and geopolitical developments remaining key drivers in the near term.