GBP/USD rose on Friday as risk appetite improved after US-Iran talks began in Pakistan. The pair traded at 1.3461, up 0.20%.
US inflation increased in March in line with expectations. Markets treated the rise as a one-off move.
Risk Appetite And Sterling Support
Optimism about Middle East peace negotiations supported demand for risk assets. This helped lift the pound against the US dollar.
We recall a similar period in 2025 when risk appetite improved on the back of US-Iran talks, sending GBP/USD higher. Today, however, that optimism has faded as negotiations have stalled over the past few months. This reversal in sentiment suggests the geopolitical support for sterling seen last year is no longer present.
Last year’s view that rising US inflation was a one-time event has been proven wrong. The latest US CPI data for March 2026, released this week, showed a headline inflation rate of 3.1%, surprising markets that had only priced in a 2.8% rise. This persistent inflation is strengthening the US dollar as markets expect the Federal Reserve to remain hawkish.
In contrast, the UK’s inflation has cooled more effectively, with the most recent figures showing a drop to 2.3%, much closer to the Bank of England’s target. This divergence in inflation paths suggests the Bank of England may be in a position to cut interest rates sooner than its US counterpart. This policy difference is creating significant downward pressure on the GBP/USD pair.
Positioning And Volatility Signals
Given this environment, traders should consider positioning for a weaker sterling against the dollar. One-month implied volatility for GBP/USD has already climbed from around 7% to 9.5% in recent weeks, reflecting rising uncertainty. Buying put options or establishing put spreads could be an effective way to capitalize on expected downside while managing the rising cost of premiums.
Recent CME data confirms this shift, showing speculative net short positions on the pound have grown to their highest level since the fourth quarter of 2025. The market is increasingly pricing in a scenario where the Fed holds rates firm while the BoE eases policy. This fundamental backdrop makes a test of lower support levels far more likely than a rally back toward the 1.3400 handle seen this time last year.
