GBP/USD rose 0.31% on Monday as the US Dollar weakened due to ongoing trade policy uncertainty.
The pair traded at 1.3507 after rebounding from a daily low of 1.3475.
Trade Policy Uncertainty Drives Volatility
The move followed a US Supreme Court decision that blocked tariffs introduced by Donald Trump under the IEEPA national emergency measure.
In mid-2025, sudden legal challenges to trade policy—such as the Supreme Court blocking tariffs—pushed the dollar lower and sent GBP/USD higher. This is a clear reminder that non-economic headlines can trigger sharp, unexpected swings in currency markets. It also shows why political uncertainty remains a key source of volatility.
Now, a similar cloud is hanging over the US Dollar as Congress debates the new “Fair Trade Modernization Act.” While this is slower-moving than a court ruling, drawn-out negotiations can still weaken confidence in the dollar. That pressure is already showing up in the U.S. Dollar Index (DXY), which has fallen about 2% this month, from 104 to around 102.
Derivative Strategies For A Choppy Market
The outlook is more complicated because the Bank of England is also signaling possible rate cuts as UK data stays weak. Q4 2025 GDP growth was only 0.1%. This softness could limit how far the pound can rally, even if the dollar remains under pressure. With mixed forces on both sides of the Atlantic, this setup points to choppy trading.
For derivatives traders, it may make more sense to focus on volatility rather than picking a direction. The Cboe FX Volatility Index for GBP is up 15% over the past month to 9.2. In this kind of market, option strategies such as straddles or strangles on GBP/USD can be sensible, since they can profit from a large move either way and reduce the risk of being caught on the wrong side of a headline.
Unlike the one-off Supreme Court event in 2025, the current legislative process offers a clearer schedule of potential catalysts. Traders can use short-dated weekly options to position around specific committee hearings or floor votes tied to the bill. Similar patterns appeared during Brexit, when scheduled political events repeatedly drove short-term jumps in implied volatility for the pound.
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