GBP/USD rose 0.18% to about 1.3620 in Thursday’s European session. The move came as the US Dollar faced selling, linked to expectations of a US–Iran peace deal.
The US Dollar Index (DXY) was down 0.1% near 97.90. Risk appetite improved after Al-Hadath reported ongoing talks to gradually reopen the Strait of Hormuz, which carries almost 20% of global energy supply.
Markets Focus On Jobs Data
S&P 500 futures were marginally higher at around 7,370. Attention now turns to the US Nonfarm Payrolls (NFP) release for April on Friday, which may shift expectations for Federal Reserve policy.
The CME FedWatch tool indicates rates are expected to remain at current levels by year-end. On the chart, GBP/USD held above the 20-period EMA at 1.3518 and traded just above the 61.8% retracement at 1.3600.
The Relative Strength Index (14) was 61.4. Support is seen near 1.3600, then around 1.3520, with deeper levels at 1.3434 and 1.3331.
Resistance sits near 1.3719, then 1.3870. The technical section was produced with AI assistance, and a correction set S&P 500 futures at 7,370.
Lessons From The 2025 Reversal
Looking back at the analysis from May of 2025, we saw optimism drive GBP/USD towards 1.3620. The market was focused on a weakening dollar, fueled by hopes of a US-Iran peace deal that would improve risk sentiment. This sentiment was so strong that it overshadowed the underlying technicals and upcoming data releases.
That optimism around the Strait of Hormuz, however, proved to be short-lived, as a lasting deal did not materialize in the months that followed. More importantly, the US Nonfarm Payrolls data released the next day in May 2025 came in strong, adding over 400,000 jobs. This directly contradicted the weak dollar narrative and reminded us how quickly sentiment can be reversed by hard economic data.
Following that payrolls report, the bullish case for Cable fell apart completely. Instead of breaking resistance at 1.3719, the pair collapsed below the 1.3520 floor and continued to slide for the rest of the year. By late 2025, GBP/USD had fallen below 1.15, showing how dangerous it can be to follow short-term news flow against a major macroeconomic trend of Fed tightening.
Now, in May 2026, the situation is quite different, and traders should be cautious of a similar trap. The US Dollar Index is not at 97.90 but is holding much firmer ground above 104.5, reflecting a resilient US economy. Furthermore, GBP/USD is trading at a more subdued level, struggling to stay above 1.2700.
Current market data from the CME FedWatch tool shows a high probability of a Federal Reserve interest rate cut by the end of this year, a stark contrast to the rate-hold expectations we saw in 2025. This divergence between expectations and the dollar’s underlying strength is the key puzzle for traders today. While the Bank of England is also signaling potential rate cuts, the timing relative to the Fed will dictate currency movements.
Therefore, derivative traders should consider strategies that protect against a potential grind lower in GBP/USD, rather than positioning for a major bullish breakout like the one that failed in 2025. Options strategies, such as buying puts or establishing put spreads, could offer a defined-risk way to position for renewed dollar strength. This approach allows traders to capitalize if the Fed proves more hesitant to cut rates than the market currently anticipates.
