GBP/USD rose above 1.3400 on Thursday and was at 1.3441, up 0.36%. The move came as risk appetite weakened and the Pound stayed supported.
The pair traded in a narrow range around 1.3400 in the Asian session. Trading was described as an attempt to hold the 20-day EMA.
Markets Watch Middle East Truce
Markets focused on a Pakistan-brokered two-week ceasefire agreed by the US and Iran early Wednesday. GBP/USD jumped more than 1% on Wednesday and reached a session high near 1.3485.
The rise eased later, with the pair slipping back towards 1.3400 during the North American session. Uncertainty increased after continued Israeli attacks on Iran-backed Hezbollah in Lebanon.
Vice President JD Vance called the agreement a “fragile truce”. Israel carried out its largest assault on Lebanon since the war began and said the Hezbollah front was not covered by the truce terms.
Looking back, we remember the brief surge in Sterling to nearly 1.3485 during that fragile US-Iran truce in 2025. The optimism was short-lived as the market quickly priced in the risk from Israel’s continued operations in Lebanon. That skepticism proved to be well-founded.
Shift To Inflation And Volatility
The truce collapsed later that year, leading to renewed shipping disruptions and a spike in energy prices that is still feeding into global inflation. Just this week, the UK’s March CPI data came in hotter than expected at 3.5%, making a Bank of England rate cut seem distant. This has kept pressure on the Pound even as the economy shows signs of slowing.
As a result, GBP/USD has fallen significantly and is now trading near 1.2350. The US dollar remains strong, bolstered by last week’s solid Non-Farm Payrolls report of over 250,000 jobs, which reinforces the Federal Reserve’s “higher for longer” interest rate stance. The contrast between a slowing UK economy with stubborn inflation and a resilient US economy is stark.
Given this environment, traders should consider buying volatility. The geopolitical situation remains tense, and any escalation could cause sharp, unpredictable swings in the currency pair. One-month implied volatility for GBP/USD has already crept up to 9.5%, and option strategies like long straddles could be positioned to benefit from a significant price move in either direction.
There appears to be a clear bearish trend for the pair. Purchasing out-of-the-money puts on GBP/USD could offer a cost-effective way to speculate on further downside toward the 1.2200 level seen during the energy shock of late 2025. Bear put spreads can also be used to cheapen the cost of entry while defining risk.
However, caution is essential as headlines can reverse the trend in an instant. Using options allows for defined risk, which is critical when the primary market driver is unpredictable geopolitical conflict. An unexpected de-escalation could cause a sharp rally, making leveraged short positions in futures or spot FX particularly dangerous.
