GBP/USD traded near 1.3500 on Thursday as tensions rose in the Middle East. The US and Iran began seising ships or oil vessels near the Strait of Hormuz, and a Pakistani official said talks between Washington and Tehran had frozen.
US forces intercepted two Iranian oil supertankers said to be trying to avoid a blockade. Oil prices eased, while the S&P 500 and Nasdaq moved higher despite weaker earnings from AI-related firms.
Us Data And Market Reaction
In the US, S&P Global data showed April activity improved, with manufacturing rising from 52.3 to 54 and services from 49.8 to 51.3. Initial Jobless Claims rose to 214K versus 212K expected, up from 208K after revision.
In the UK, the S&P Global Composite PMI rose from 50.3 to 52, with manufacturing and services both above 50. Reports from S&P Global and the CBI said input prices were rising, linked to the Iran war.
Markets expect the Bank of England to keep rates at 3.75%, with a nearly 55% chance of a June 17 hike and a peak near 4.25% by December. UK Retail Sales are forecast at 0.2% MoM versus -0.4%, and 1.3% YoY versus 2.5%, while the US updates April Michigan sentiment.
GBP/USD was at 1.3495, above moving averages near 1.3414, with resistance at 1.3861 and 1.3869. Support is at 1.3495, then 1.3414 and 1.2996.
Looking back a year ago, in April 2025, we saw the market fixated on geopolitical risk in the Strait of Hormuz, which capped GBP/USD near 1.3500. Those tensions have since eased, allowing fundamentals to drive the currency pair once again. The focus has completely shifted from military headlines to the economic tug-of-war between the Bank of England and the US Federal Reserve.
In 2025, we were pricing a peak Bank of England rate around 4.25%, but stubborn inflation forced the Monetary Policy Committee to be more aggressive. The BoE eventually took rates to 4.50% and has held them there, as the latest CPI report for March 2026 showed inflation is still sticky at 2.8%, well above the 2% target. This hawkish reality has been a primary driver of sterling’s strength over the past year.
Trading Outlook And Strategy
The economic picture, however, presents a challenge, as the UK’s growth remains sluggish, with Q1 2026 GDP coming in at just 0.1%. In contrast, the US economy continues to show resilience, adding 250,000 jobs in its most recent non-farm payrolls report. This divergence is creating a ceiling for GBP/USD, even with the BoE’s firm stance.
With the geopolitical premium gone, implied volatility in GBP/USD has fallen significantly from the levels seen during the Hormuz crisis in 2025. One-month implied volatility is now trading near 6.5%, making strategies that sell premium, such as short strangles, more appealing for traders who believe the pair will remain range-bound between competing central bank narratives. This approach allows us to collect income while the pair digests the opposing economic data.
Given the current level near 1.4100, directional plays should be structured with defined risk. Buying a GBP/USD call spread, for instance, could be a cost-effective way to position for a potential break higher if upcoming UK data surprises to the upside. This strategy limits downside risk if the strong US economic performance continues to bolster the dollar.
