GBP/USD recovered after opening with a gap lower near 1.3480, following fresh Middle East tensions involving a seized Iran-flagged vessel and Iran’s demands over the Strait of Hormuz. The pair was at 1.3525, up 0.13%, as the US Dollar eased.
The US Dollar Index (DXY) fell about 0.05% to 98.17 after reaching a six-day high of 98.39 in early Asian trading. Oil prices rose, with WTI up nearly 3.90% to $87.37 per barrel, adding to global inflation concerns linked to supply risk and possible disruption in the Strait of Hormuz.
US data releases were limited, with attention turning to an April 21 US Senate hearing on Kevin Warsh as the nominee for Federal Reserve Chair. Markets also monitored upcoming US releases including the ADP Employment Change 4-week average, Retail Sales, and a US Senate appearance by Warren.
In the UK, two surveys showed weaker consumer mood, with S&P Global sentiment at 42.3 from 44.1, a 33-month low, and Deloitte’s gauge at its lowest since Q3 2023. More than half of S&P respondents expect a Bank of England rate rise, with UK employment data due Tuesday.
Technical levels cited include 1.3422 (simple moving average), 1.3027 (prior downtrend break), and 1.3844 (former uptrend break).
Looking back at this time in 2025, we remember the sharp spike in oil prices due to tensions in the Strait of Hormuz. The geopolitical flare-up briefly pushed West Texas Intermediate crude over $87 a barrel, fueling global inflation fears. Those fears proved to be short-lived as the diplomatic situation eventually calmed.
Today, with West Texas Intermediate trading more steadily around $82 a barrel, that specific risk premium has faded from the market. Recent EIA reports show global inventories have built up slightly, giving the market a cushion against minor supply disruptions. This stability in energy prices has allowed central banks to focus more on domestic growth data.
The UK economic picture has shifted significantly from the gloom we saw in early 2025. UK inflation has since cooled to 2.4% according to the latest ONS figures, much closer to the Bank of England’s target. Consequently, the BoE has paused its hiking cycle and is now signaling potential rate cuts later this year.
In the US, the dollar has remained strong since Kevin Warsh took over as Federal Reserve Chair last year. With the US Dollar Index (DXY) currently holding firm above 105, well above the 98 level seen during the 2025 turmoil, the greenback continues to be favored. This is largely due to the Fed maintaining higher rates for longer than its G7 peers.
Given the divergence between a hawkish Fed and a more dovish Bank of England, we should consider strategies that benefit from a weaker Sterling. Buying puts on GBP/USD or establishing bearish put spreads offers a defined-risk way to position for a potential slide towards the 1.2700 level. Implied volatility is much lower now than during last year’s scare, making options strategies more affordable.
The technical picture confirms this cautious view, as last year’s support around 1.3400 now looks like a distant resistance level. With GBP/USD currently struggling to hold above 1.2850, any rally is likely to be sold into. We see the 50-day moving average near 1.2900 as a key level to watch in the coming weeks.
