The British pound edged higher in European trading on Wednesday against a basket of major currencies, extending gains for a third consecutive session against the US dollar and remaining close to its highest level in two weeks, as the greenback stayed under pressure ahead of the Federal Reserves monetary policy decision.

Investors are awaiting key UK inflation data due later today, which could play a major role in reshaping expectations for the future path of Bank of England interest rates.

Price action

GBP/USD rose by less than 0.1% to $1.3434, up from an opening level of $1.3427, after touching an intraday low of $1.3422.

The pound gained more than 0.1% against the dollar on Tuesday, marking its second consecutive daily advance. It also reached a two-week high of $1.3461 in the previous session, supported by optimism surrounding the US-Iran agreement.

US dollar

The US Dollar Index slipped by less than 0.1% on Wednesday, extending losses for a third straight session as the greenback continued to weaken against a basket of global currencies.

The decline comes amid ongoing optimism over a temporary peace agreement between the United States and Iran, which has improved risk appetite and reduced demand for the US dollar as a traditional safe-haven asset.

The weakness in the dollar also comes ahead of the outcome of the first Federal Reserve meeting chaired by Kevin Warsh, with markets looking for any indication that rate cuts could be considered later this year.

Oil prices

Global oil prices fell by more than 1% on Wednesday, extending losses for a fourth consecutive session and hitting their lowest levels in three months as concerns over global supply shortages continued to fade.

US-Iran agreement

President Donald Trump said he may submit details of the preliminary agreement with Iran to Congress.

Switzerlands Foreign Ministry stated that a potential memorandum of understanding between the United States and Iran is scheduled to be signed on June 19 in Brgenstock, central Switzerland.

The Wall Street Journal reported that the agreement would allow Iran to resume oil sales immediately after signing.

Irans Foreign Minister said negotiations would continue for 60 days after the initial phase in an effort to reach a final agreement covering the nuclear issue and sanctions relief.

A Reuters source said the agreement includes a $300 billion reconstruction fund, with more than half already allocated to projects inside Iran.

The fund contains no government money and remains separate from discussions regarding frozen Iranian assets.

UK interest rates

The International Monetary Fund said last month that the Bank of England does not need to raise interest rates and may eventually need to lower them.

Market pricing currently assigns only a 2% probability of a Bank of England rate hike at Thursdays policy meeting.

UK inflation data

Investors are closely watching the release of the UKs May inflation figures later today, as the data could significantly influence expectations for future Bank of England policy decisions.

At 06:00 GMT, headline Consumer Price Index inflation is expected to rise to 3.0% year-over-year in May from 2.8% in April, while core CPI is forecast to increase to 2.7% annually from 2.5% previously.

Outlook for the British pound

According to Economies.com, if UK inflation data comes in below market expectations, the probability of a Bank of England rate hike this year would likely decline, potentially renewing downward pressure on the British pound.