The Pound rose against the US Dollar as a proposed ceasefire faced some violations, but risk appetite remained strong. The GBP/USD increased by over 0.65%, despite ongoing geopolitical uncertainties.

Impact of Federal Reserve Decisions

Fed Chair Jerome Powell suggested that rate cuts might be delayed while the central bank looks at the effects of tariffs. He pointed out that higher tariffs could raise prices and impact economic activity, with varying durations of these effects. GBP/USD stayed above the 1.3600 level, hitting heights not seen since early 2022. Traders reacted strongly to this change in sentiment. The easing of military tensions followed a ceasefire announcement by Trump, confirming that Iran and Israel agreed to stop hostilities. However, traders are not overly optimistic. They remain cautious due to past ceasefires in the region that have often failed to last. Despite this, the market still rallied. The news seemed like a welcome short-term relief from broader anxieties. The Pound continued to strengthen against the Dollar, even with reported ceasefire violations. This suggests that investors still prefer higher-yielding or risk-linked assets, a common behavior when geopolitical threats decrease, even if they don’t completely disappear. Powell’s recent comments shifted focus back to monetary policy, although with less clarity. He noted that incoming tariffs could increase prices, making it more difficult for the Federal Reserve to move forward with rate cuts. Normally, this would support the Dollar, but recent shifts in risk preferences have overshadowed that support.

Short Term Opportunities and Risks

From our perspective, this creates a brief opportunity for the Pound to gain or at least remain stable amid global uncertainties. Trends in trading volume and options suggest traders are leaning towards an upward bias, possibly preferring reversal strategies at key resistance levels. Powell’s mention of a wide range of potential tariff impact “duration” indicates we may wait longer than expected for a decisive Fed rate move. It’s important to note that traders are not ignoring geopolitical developments; rather, they are adjusting and moving towards assets that are less affected by initial risks. This is clear from the strong rise of GBP/USD, while safe havens like Gold or the Yen have cooled down. Recent analysis of derivatives markets shows an increasing preference for call options on GBP/USD, indicating that many believe momentum can continue if no new disruptions occur. If the ceasefire holds and central banks remain uncertain about timing their policy moves, the Pound could continue to gain. The next important phase depends on how smoothly these geopolitical influences fade from the market and whether upcoming discussions about uranium enrichment lead to new volatility. In terms of trading strategies, short-dated gamma trades seem to be losing appeal. Instead, traders are shifting towards longer-term positions that allow for more recovery time if volatility returns. We are noticing a trend towards longer positions in risk-reward structures. While this comes with its own risks, it also suggests a belief that any pullbacks could be minor unless new shocks arise. Create your live VT Markets account and start trading now.

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