GBP/USD rose from the low 1.3200s to a session high near 1.3400 after President Trump announced a two-week pause in military operations against Iran. The pair moved into the upper 1.3300s and traded above the 50 and 200-period hourly moving averages.
Markets shifted towards risk assets as WTI crude fell from above $106 to below $90 per barrel. S&P 500 futures gained over 1%, while the US Dollar Index (DXY) slipped back towards 100.00.
Uk Data And Pmi Weakness
UK data was weaker, with the final March services PMI revised to 50.5 from 51.2 and down from February’s 53.9. The composite PMI fell to 50.3, with new work dropping for the first time since November 2025 and input cost inflation at an eleven-month high.
The Bank of England has held rates at 3.75% since December 2025 and voted unanimously to keep them unchanged in March. Pricing moved from two to three cuts in 2026 to four quarter-point hikes by year-end, before the ceasefire altered rate expectations.
Iran rejected a temporary ceasefire hours before the announcement, and Polymarket put the chance of a lasting ceasefire by end-April at 22.5%. Key releases include FOMC Minutes (18:00 GMT), Core PCE (12:30 GMT), and March CPI at 12:30 GMT, with CPI seen at 3.3% YoY (prior 2.4%) and core at 2.7% (prior 2.5%).
UK indicators due include Halifax House Prices, construction PMI, the BoE Credit Conditions Survey, and RICS Housing Price Balance at -18%. GBP/USD levels cited include the 200-period EMA at 1.3261, resistance near 1.3480, and a range between 1.3160 and 1.3480.
Looking back to this time in 2025, the market was reacting to the temporary ceasefire announcement, which we viewed with heavy skepticism. The surge in GBP/USD was a classic risk-on dollar selling event, but implied volatility in the options market remained high, signaling a disbelief in the truce’s durability. This is similar to the VIX index holding above 30 in early 2022 even on brief market rallies, showing that traders were still pricing in significant tail risk.
Options Volatility And Risk Hedging
The weakness in the UK economy, particularly the dismal services PMI revision to 50.5, was the critical factor for us. This stagflationary signal meant buying GBP/USD was a risky bet on a fragile currency, not just a simple play against the dollar. Therefore, many of us preferred strategies like buying GBP/USD put options to protect against a reversal, or even initiating relative value trades like shorting the pound against a stronger currency.
With major data points like the US CPI and FOMC Minutes due that week in 2025, positioning for central bank divergence was key. Historically, a surprise of just 0.2% in US Core CPI can move GBP/USD by over 40 pips almost instantly, making short-dated options that expired after the release a popular tool. This allowed us to trade the expected burst of volatility around the announcement without carrying the risk over many weeks.
The dramatic fall in WTI crude oil from over $106 to below $90 was the primary driver of the dollar weakness we saw. This tight correlation meant many of us were hedging our currency positions directly in the energy market. A common structure was to pair a long GBP/USD spot position with buying put options on WTI futures, creating a buffer in case the ceasefire collapsed and oil prices reversed sharply higher.
The technical levels mentioned at the time, such as resistance near 1.3480, were perfect for structuring options trades. We saw significant volume in weekly call options with a 1.3500 strike price, which offered a cheap way to bet on a continued rally if the positive sentiment held. At the same time, the 1.3300 level became a popular strike for put options, serving as a floor to hedge long positions against a sudden return of risk aversion.
