Fed Boe And Geopolitics In Focus
US core PCE inflation rose to 3.1% year on year in January from 3% in December, compared with a 2% target. Markets are also watching the Strait of Hormuz, described as partially seized by Iran, while US President Donald Trump has not secured allies to oppose the blockade. In the UK, markets expect the BoE to hold rates with a hawkish tone. The article says the employment figures may have limited effect because the rate decision is already set. On the 4-hour chart, GBP/USD was near 1.3340 and held above the 20-period SMA near 1.3300 but below the 100-period SMA around 1.3400. RSI rose back towards 54 after dipping below 50. Support is at 1.3299 and then 1.3273, while resistance is at 1.3360 and 1.3400. A move above 1.3360 targets 1.3400, while a drop below 1.3299 shifts focus to 1.3273.Late 2025 Context And Current Shift
Looking back to late 2025, we saw GBP/USD pushing towards 1.3350 based on the view that the Bank of England would remain more hawkish than the Federal Reserve. The key drivers were geopolitical tensions in the Middle East pushing oil prices up and complicating the Fed’s inflation fight. At that time, traders were betting on the pound’s relative strength against the dollar. That dynamic has now changed considerably. The standoff in the Strait of Hormuz eventually de-escalated, and as a result, crude oil prices have fallen from over $90 a barrel in late 2025 to around $78 a barrel today. This has helped ease inflationary pressures in the US, with the most recent Core PCE data for February 2026 coming in at 2.5%, much lower than the 3.1% figure that caused concern last year. The Bank of England also held its nerve, but the UK economy has cooled, with inflation now down to 2.8% from the stickier levels seen in 2025. This means the policy divergence that once favored the pound has evaporated. Both the Fed and the BoE are now expected to begin cutting interest rates in the second half of this year, creating a more synchronized outlook. For derivative traders, this suggests that the sharp directional moves we saw last year are less likely in the coming weeks. The pair’s volatility has decreased as the central banks have moved into alignment. We should now be looking at strategies that benefit from range-bound price action rather than breakouts. Considering the pair has since drifted from the 1.3350 level and now trades closer to 1.2850, selling short-dated straddles or strangles could be an effective strategy. This allows us to collect premium from the expectation that GBP/USD will remain contained as markets await the first rate cut from either central bank. Pay close attention to employment data on both sides, as any unexpected weakness could be the catalyst that breaks the current calm. Create your live VT Markets account and start trading now.
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