GBP/USD fell on Monday as Middle East tensions increased near the Strait of Hormuz. The pair was at 1.3531, down 0.34%.
Iranian media said a US ship was targeted, while Axios cited a US senior official denying any attack. Iranian media also published footage said to show “warning shots” at US Navy destroyers entering the Strait of Hormuz.
Dollar Strength On Rising Geopolitical Risk
US data showed Factory Orders rose 1.5% month-on-month in March, above forecasts for a 0.5% rise, after 0.3% growth in February. The US Dollar Index was up 0.19% at 98.39, while UK markets were shut for a public holiday.
The UAE reported a fire at petroleum facilities after an Iranian drone attack, lifting oil prices, including WTI. The report stated WTI and the US dollar have a positive correlation.
Upcoming events include a speech from New York Fed President John Williams and Tuesday’s ISM Services PMI. No UK releases are scheduled for the first two days of the week.
Technically, GBP/USD was around 1.3532, above simple moving averages near 1.3413. Resistance was cited around 1.3920 and 1.3869, with support near 1.3413, then 1.3035 and 1.2885.
Options Positioning And Volatility Risks
With tensions escalating in the Strait of Hormuz, we are seeing a classic flight to safety that is strengthening the US Dollar. This is a critical chokepoint, as roughly one-fifth of the world’s total oil consumption passes through it daily. Any disruption here points towards continued demand for the dollar as a haven asset in the coming weeks.
The surge in WTI crude prices is directly fueling this dollar rally, a dynamic we’ve seen strengthen as the US has solidified its position as a major energy producer. Unlike the oil shocks of previous decades, higher oil prices can now provide a net benefit to the US economy, supporting the Greenback further. We believe call options on oil and USD-tracking funds are a logical response to this environment.
Sterling is particularly vulnerable, caught between a stronger dollar and its own closed markets, making it an easy target for sellers. This situation is reminiscent of the pressure the pound faced during the energy price shocks we saw back in 2022, when a reliance on energy imports weighed heavily on the currency. We are positioning for further downside in GBP/USD, potentially using put options to target the 1.3413 support level.
We anticipate a significant spike in market volatility, likely pushing the CBOE Volatility Index (VIX) well above its recent average of 14. This means option premiums will become more expensive across the board. Traders should be prepared for wider price swings and consider strategies that benefit from rising implied volatility.
The upcoming US ISM Services PMI on Tuesday is now a key event to watch. Recent readings through 2025 have consistently stayed above the 50 expansion mark, so another strong number would reinforce the narrative of US economic outperformance and give the Federal Reserve less reason to ease policy. This would add another layer of support for long dollar positions against the pound.
