GBP/USD rose in Friday’s North American session after reports said Iran reopened the Strait of Hormuz following a Lebanon ceasefire agreement. The pair reached near 1.3600 and traded at 1.3567, up 0.36%.
Iran’s foreign minister said the Strait was open to commercial vessels for the rest of the US-Iran ceasefire period. Military ships, or ships from countries seen as hostile to Tehran, were not allowed.
The US President said the US military blockade would stay until a Washington-Tehran deal is reached. He said talks could start this weekend and said he would go to Pakistan once a deal is completed.
The US dollar hit a seven-week low as markets priced in possible Federal Reserve cuts in 2026. LSEG Workspace data showed expectations of nearly 16 basis points of easing towards year-end.
A San Francisco Fed official said policy was “slightly restrictive” and above a neutral rate of 3%. She indicated one or two cuts in 2026 were possible, but a rate rise could be needed if inflation increases.
Sterling also gained as markets priced in 24 basis points of Bank of England tightening. UK political coverage included reports of pressure on the Prime Minister after his former US ambassador failed background checks and was linked to Jeffrey Epstein.
On the chart, GBP/USD held above the 50-day, 100-day, and 200-day SMAs near 1.3530. Resistance was cited at a descending line from 1.3869, with support also linked to a rising line from 1.3035.
The reopening of the Strait of Hormuz is a significant de-escalation, removing a major risk premium from the market. We believe this pivot allows traders to focus on the growing policy divergence between a dovish Federal Reserve and a hawkish Bank of England. This fundamental backdrop is strongly supportive of a higher GBP/USD in the coming weeks.
For the US dollar side of the pair, the market is now aggressively pricing in Fed rate cuts. The CME’s FedWatch Tool now indicates a greater than 65% probability of at least one rate cut by the September 2026 meeting, a sharp reversal from just last month. This expectation is weighing heavily on the greenback and should continue to do so as long as geopolitical tensions ease.
Conversely, the Bank of England is facing a different problem, which supports the pound. With UK CPI inflation remaining stubbornly above the 2% target, last recorded at 3.1% in March 2026, the market is right to price in further tightening. This contrasts sharply with the situation in early 2025 when inflation was briefly thought to be under control.
Given this divergence, we see value in buying call options on GBP/USD to gain upside exposure while limiting risk. June 2026 expiry calls with a strike price around 1.3700 could offer significant leverage if the pair breaks its key descending resistance near 1.3869. This strategy capitalizes on the bullish momentum while defining the maximum potential loss.
However, we must hedge against the political risk in the UK, as we saw with the market volatility surrounding the 2025 general election. The pressure on Prime Minister Starmer could introduce sudden sterling weakness, making it prudent to consider cheaper, out-of-the-money put options as a portfolio hedge. Any breakdown of the ceasefire would also immediately reverse this trade, as oil prices would spike and safe-haven demand for the dollar would return.
Therefore, we will be closely watching the upcoming US Core PCE data for signs of cooling that would validate the Fed’s dovish pivot. The next UK jobs and inflation report will also be critical, as any strong numbers would reinforce the BoE’s hawkish stance and fuel the rally. We should use the technical support level around 1.3530 as a key area to monitor for the durability of this uptrend.
