GBP/USD reduced part of its earlier decline after opening with a gap down, but it still traded lower near 1.3500 in Asian hours on Monday. The move followed stronger demand for the US Dollar as a safe haven amid renewed US–Iran tensions.
The Guardian reported that Iran’s Foreign Ministry spokesman Esmail Baghaei said the US blockade of Iran’s ports and coastline is an act of aggression that violates the ceasefire. Baghaei wrote on social media that it is “collective punishment” and “a war crime and crimes against humanity”.
Iranian authorities indicated on Friday that the Strait would reopen, then reversed the move on Saturday after US President Donald Trump refused to lift the blockade on Iranian ports. Iran’s military said the US breached the ceasefire by firing on a commercial vessel and said it would retaliate.
Markets also supported the Dollar as traders priced in a Federal Reserve higher-for-longer stance linked to persistent inflation and Middle East tensions. US Retail Sales data due Tuesday is forecast to rise 1.3% month-on-month in March, after 0.6% in February.
Sterling may find support if Strait of Hormuz tensions push oil prices higher and add to inflation concerns. BoE Deputy Governor Sarah Breeden said the conflict has increased the risk of overlapping market stresses and that vulnerabilities seen before past crises remain.
We remember the market volatility in early 2025 when US-Iran tensions flared up over the Strait of Hormuz blockade. The GBP/USD was trading around 1.3500 then, but the persistent strength of the dollar has since pushed the pair lower. With the pair currently hovering near 1.2450, we see similar underlying risks remaining.
The dollar’s safe-haven appeal from last year’s conflict has been reinforced by the Federal Reserve’s ongoing battle with inflation. Our latest data from Q1 2026 shows US inflation remains sticky at 3.5%, keeping the Fed’s “higher-for-longer” stance firmly in place. This makes buying put options on the GBP/USD an attractive hedge against continued dollar dominance.
On the Sterling side, the Bank of England faces a similar challenge to the one it had in 2025. While recent UK inflation has cooled to 3.2%, the threat of rising energy prices means rate hike expectations have not disappeared completely. This suggests traders should monitor short-term interest rate futures to position for any hawkish surprises from the BoE.
The events of 2025 were a stark reminder of how geopolitics can ignite energy markets, a lesson that holds true today. With Brent crude currently trading around $87 a barrel and tensions in the Middle East still elevated, buying call options on oil is a direct strategy to trade this risk. This approach offers protection against sudden price spikes that could stem from any new supply disruptions.
We saw last year how quickly the narrative could shift, causing sharp swings in currency pairs. The current environment of central bank uncertainty suggests implied volatility in GBP/USD options may be undervalued. We believe using option strategies like straddles, which profit from a large price move in either direction, could be a prudent approach in the coming weeks.
