GBP/USD pared some losses after opening with a gap down, but stayed lower near 1.3500 in Asian trading on Monday. The US Dollar found support from safe-haven demand linked to renewed US–Iran tensions.
The Guardian reported that Iran’s Foreign Ministry spokesman Esmail Baghaei said a US blockade of Iran’s ports and coastline is aggression that violates the ceasefire. He said it amounts to collective punishment, and described it as a war crime and crimes against humanity.
The pair moved further from a two-month high near 1.3600 reached on Friday. It recovered a few pips from a one-week low set in early Asian trade, and was still down over 0.15% on the day.
Risk sentiment weakened amid tensions over the Straight of Hormuz. Iran closed the waterway after briefly opening it over the weekend, alongside a US naval blockade of Iranian ports.
The developments reduced expectations for further peace talks. The current ceasefire is due to end on 22 April.
We are seeing a familiar pattern as geopolitical risk drives a flight to the safe-haven US Dollar, much like we observed during the Middle East flare-up in April 2025. This move is pressuring GBP/USD and we should anticipate further strength in the dollar index (DXY), which has already pushed past the 106.00 mark recently. Derivative traders should be positioned for a risk-off environment to persist in the short term.
The looming April 22 ceasefire deadline is a significant catalyst for a spike in market volatility. During a similar escalation last year, the VIX index, which measures expected market volatility, jumped by nearly 25% in just a few days. Therefore, buying GBP/USD put options offers a direct way to hedge against a breakdown in talks and a subsequent sharp move lower in the currency pair.
The closure of the Strait of Hormuz is a critical factor, as nearly 20 million barrels of oil, or about 20% of global consumption, pass through it daily. A sustained blockage could drive Brent crude prices back over $100 per barrel, creating an inflationary shock that complicates the Bank of England’s policy. While this could argue for a hawkish central bank, the immediate safe-haven demand for the dollar is the dominant trading theme.
We should also monitor the options market, particularly the skew in GBP/USD risk reversals, which currently show a growing premium for puts over calls. This indicates that market participants are actively buying downside protection against a fall in the pound. This growing bearish sentiment could be exploited by setting up trades like bear call spreads, which would profit if the pair remains below a certain level like 1.3600.
