GBP/USD paused on Wednesday and traded near 1.3570 as earlier optimism about renewed US-Iran talks eased. US equities kept rising and the US Dollar steadied after a six-week low.
Markets reacted to reports that a US-Iran ceasefire could extend for another couple of weeks. The Washington Post said the Pentagon is deploying extra troops to the Middle East, and Pakistan’s military said Field Marshal Asim Munir arrived in Tehran.
US import and export price data drew little attention. Cleveland Fed President Beth Hammack said rates are likely to stay on hold “for a good while”, with no immediate need to change settings.
Markets expect the Bank of England to tighten by 38 basis points by year end. UK natural gas import reliance had contributed to energy prices rising to near 40%, though resuming Strait of Hormuz traffic may reduce tightening expectations.
BoE member Megan Greene said she remains concerned about price pressures and that energy shock effects may take months to appear. Next, UK GDP is expected to rise from 0.0% to 0.1% month on month in February, while the US focuses on jobless claims for the week ending 11 April.
GBP/USD traded at 1.3573, above the 50-, 100- and 200-day SMA cluster near 1.3428. Support levels were cited at 1.3490–1.3492 and 1.3428.
Looking back to this time in 2025, the market was driven by a hawkish Bank of England facing an energy shock from the Iran conflict. The US Federal Reserve was expected to stay on hold, creating a clear case for GBP/USD strength. That narrative was based on a widening interest rate difference favoring the UK.
The situation has changed significantly over the last year, and that trade is no longer straightforward. The de-escalation in the Middle East caused energy prices to stabilize, removing the primary reason for the BoE’s aggressive stance. UK inflation has since cooled, with the latest Office for National Statistics data showing CPI at 2.8%, much lower than the peaks we saw during the 2025 scare.
Meanwhile, the US economy proved more resilient than anticipated, forcing the Fed to be less dovish than the 2025 outlook suggested. Recent US growth in Q1 2026 came in at a solid 1.9%, and core inflation is proving sticky, holding around 3.2% year-over-year. This has kept the US dollar supported, erasing the rate advantage that was expected to boost the pound.
For derivative traders, this means the theme has shifted from directional bets on policy divergence to something more nuanced. Implied volatility in GBP/USD has fallen from the highs seen during last year’s geopolitical tensions, making long options less attractive. We believe strategies that profit from range-bound price action or a slow grind lower for the pair are now more appropriate.
In the coming weeks, we should consider selling out-of-the-money call options on GBP/USD to collect premium, betting that the pair will struggle to break higher without a strong new catalyst. This strategy benefits from the current environment where neither central bank is in a hurry to make a dramatic move. Watch upcoming US jobless claims and UK retail sales data for any signs of economic divergence that could reintroduce volatility.
