GBP/USD rebounded from the previous day’s modest losses and traded near 1.3570 in Asian hours on Thursday. The move followed improved market mood linked to expectations of a possible easing in the Middle East conflict.
US President Donald Trump said the war was “close to over”. Reports, including Bloomberg, referred to talk of a possible two-week extension of a ceasefire, though Trump said this was not needed as talks continued.
Uncertainty remained after Washington announced plans to deploy an extra 10,000 troops to the region. GBP/USD later steadied around 1.3570 on Wednesday as optimism about renewed US-Iran talks cooled.
US equities extended gains, while the US Dollar appeared to have found a floor after a six-week low. The two-week ceasefire extension idea supported Wall Street, and Trump also referred to “amazing two days” ahead as talks continued.
Looking back to 2025, we can see the easing of Middle East tensions was a major turning point for risk sentiment. The de-escalation of the US-Iran conflict, which saw GBP/USD rebound around the 1.3570 mark, effectively ended the market’s flight to the safety of the US Dollar. This shift created a lasting tailwind for currencies sensitive to global growth, like the pound.
The calm that followed has fundamentally changed the volatility landscape, which is crucial for our strategy now in April 2026. After the 2025 ceasefire agreement was finalized, the VIX index, a key measure of market fear, dropped sharply from its conflict highs and has been trading in a tight range, currently hovering near a low of 14. This sustained period of low volatility means option premiums are significantly cheaper than they were a year ago.
This environment has helped propel GBP/USD higher, with the pair now trading near 1.3920. With UK inflation having cooled to 2.5% as of last month’s data, the market is no longer pricing in emergency measures, but is instead focused on the Bank of England’s reluctance to cut rates as quickly as the US Federal Reserve. This interest rate differential continues to provide underlying support for the pound sterling.
Given the low volatility, traders should consider buying options rather than selling them to capture potential upside at a low cost. The recent stability means long-dated call options on GBP/USD are attractively priced, offering a cheap way to position for a continued grind higher driven by central bank policy differences. We see this as a more efficient use of capital than holding the underlying asset directly.
A specific strategy for the coming weeks could be to use a bull call spread on GBP/USD to target a move above 1.4000. For instance, buying a June 2026 call option with a 1.3950 strike price while simultaneously selling a 1.4100 call would limit the initial cost. This defined-risk trade is designed to profit from a moderate rise in the pound, which aligns with the current stable but positive market sentiment.
