GBP/USD rose on Friday as risk appetite improved and demand for the US Dollar as a safe haven eased. Markets focused on speculation about a second round of US–Iran talks and a three-week extension of the Israel–Lebanon ceasefire.
The pair traded at 1.3498, up 0.24%, after rebounding from a daily low of 1.3453. Price action also reflected hopes of an easing in tensions between the US and Iran.
Uk Data Supports The Pound
In the UK, Retail Sales increased 0.7% in March, with fuel purchases a key driver as prices rose amid conflict in the Middle East. The data supported the Pound, even as other indicators continued to point to slower UK growth.
GBP/USD recovered in the European session and traded around 1.3490 as the US Dollar pulled back after a three-day rise. The US Dollar Index was down 0.1% at about 98.70.
Oil prices stayed elevated on concerns about a prolonged closure of the Strait of Hormuz. The route is linked to almost 20% of global energy supply, which helped keep the wider US Dollar outlook firm.
With GBP/USD testing the 1.3500 level on hopes of easing Middle East tensions, we see this as a fragile rally. The US Dollar’s pullback appears to be a temporary reaction to positive headlines rather than a fundamental shift. Traders should consider the possibility that this is a selling opportunity, as the underlying risk from the Strait of Hormuz situation has not disappeared.
Options Strategies To Define Risk
The geopolitical situation creates a classic binary outcome, making options strategies attractive for defining risk. We believe buying out-of-the-money put options on GBP/USD could be a cost-effective way to position for a snapback in US Dollar strength if these talks falter. Conversely, traders feeling optimistic could use bull call spreads to target a move higher while capping their initial cost.
The strength in UK retail sales being driven by fuel prices is a significant tell. It points to persistent inflationary pressures, and last month’s UK Consumer Price Index (CPI) reading of 3.2% confirms this trend. This may keep the Bank of England from easing policy, providing a floor for the Pound for now.
On the other side of the pair, the US Dollar’s broader strength is supported by sticky domestic inflation, which recently came in at 3.5%. This divergence suggests the Federal Reserve has less reason to cut interest rates than its peers. The current dip in the dollar index to 98.70 may therefore attract buyers looking for a better entry point.
Looking back at 2025, we saw how markets were quick to price out geopolitical risk premiums, only to be caught off guard when tensions flared up again. The volatility we saw in energy markets during the 2022 crisis serves as a stark reminder of how quickly supply fears can dominate sentiment. This historical precedent urges caution against chasing the current risk-on mood too aggressively.
Therefore, we are watching implied volatility levels in the currency pair very closely. If volatility remains low despite the clear risks, a long volatility position through a straddle could be prudent. This strategy would profit from a significant price move in either direction, which seems highly plausible in the coming weeks.
