GBP/USD traded at 1.3515 on Tuesday as the US dollar strengthened. The pound faced added pressure after an escalation in the US-Iran conflict, which raised fears of a truce breakdown and a move into safe-haven assets.
Tensions centred on the Strait of Hormuz. The US reported the detention of an Iranian vessel, while Iran declined to join further negotiations, supporting higher oil prices and demand for the dollar.
The pair has stalled just below 1.3600 resistance. This area is reinforced by the 0.618 Fibonacci retracement.
The currency is described as overbought, though not excessively. Early trading hovered near support at 1.3516.
We saw this kind of pressure on GBP/USD back in early 2025 when the US-Iran conflict caused a rush into the safe-haven dollar. The pair struggled below the 1.3600 resistance level as traders priced in geopolitical risk. That dynamic, however, is no longer the primary market driver.
Today, the focus has shifted entirely to the divergence in central bank policy. The UK’s latest inflation figures for March 2026 came in at a stubborn 3.1%, well above the Bank of England’s target. In contrast, recent US CPI data shows inflation cooling more rapidly, now sitting at 2.5%.
This data suggests the Bank of England will be forced to maintain higher interest rates for longer than the US Federal Reserve. This interest rate differential is fundamentally supportive of the pound against the dollar. Consequently, we are now trading significantly higher, near 1.3850.
The geopolitical risk premium from last year has also faded, with WTI crude oil prices stabilizing around $85 a barrel, down from the spikes seen during the Strait of Hormuz tensions. One-month implied volatility in GBP/USD has fallen from over 10% during that 2025 scare to a much calmer 7.5% today. This indicates that options are now cheaper and the market anticipates less drastic price swings.
Given the lower volatility and bullish fundamental outlook, traders could consider buying GBP/USD call options with strike prices above 1.3900. This strategy offers upside exposure to the expected sterling strength while clearly defining the maximum risk. A bull call spread could also be used to further reduce the initial cost.
For those looking at futures, the clear interest rate advantage makes holding long GBP positions attractive due to the positive carry. We should now view the old 1.3600 resistance from 2025 as a potential new level of long-term support. The next significant target to watch on the upside will be the psychological 1.4000 mark.
