GBP/USD rose in the North American session on Friday after reports said Iran reopened the Strait of Hormuz. The move followed an agreement on a ceasefire in Lebanon.
The British Pound reached a daily high near 1.3600 as the US Dollar weakened. At the time of writing, GBP/USD was 1.3567, up 0.36%.
We remember the market’s reaction in late 2025 when the Strait of Hormuz reopened, causing a sharp rally in GBP/USD toward the 1.3600 level. That event showed us how quickly a fall in geopolitical risk can weaken the US dollar as a safe-haven asset. The sudden de-escalation caught many traders off guard, benefiting those positioned for a stronger pound.
Today, implied volatility in the currency markets has fallen to its lowest level since early 2024, suggesting a broad sense of complacency. For instance, the CME’s British Pound Volatility Index (BVP) is currently hovering near 5.8, a significant drop from the double-digit figures we saw during past crises. This low volatility environment makes option premiums relatively cheap for those anticipating a future shock.
Fundamentally, the economic picture also supports a potentially stronger pound against the dollar. The latest data for the first quarter of 2026 showed UK core inflation remaining persistent at 3.4%, well above the Bank of England’s target. In contrast, U.S. inflation has moderated to 2.7%, giving the Federal Reserve more room to consider easing policy later this year.
Given this backdrop, buying long-dated GBP/USD call options appears to be a prudent strategy over the coming weeks. This allows traders to position for a potential upside move with a defined, limited risk. The current low volatility means the entry cost for these positions is unusually attractive.
However, we must also consider the opposite scenario, as history has shown how quickly risk sentiment can reverse. A sudden global flare-up would trigger a flight to safety, strengthening the dollar and pushing GBP/USD sharply lower, much like the initial market reactions during the 2022 global energy crisis. For this reason, hedging long positions with cheap, out-of-the-money puts could protect against an unexpected downturn.
