GBP/USD traded near 1.3457–1.3459 on Monday, holding close to 1.3460 after Iran–US talks ended without an agreement. Reports said Tehran may be considering abandoning uranium enrichment, while the US began a blockade in the Strait of Hormuz at 10:00 AM EDT.
The Wall Street Journal reported the blockade had started, citing a senior US official, and said more than 15 US warships are supporting the operation. Energy prices edged higher after the weekend talks failed to produce a deal.
Market Reaction And Key Data
The US Dollar Index was up 0.10% at 98.79, adding pressure on GBP/USD. US Existing Home Sales fell from 4.13 million to 3.98 million in March, a 3.6% drop, and the lowest level in nine months.
In the UK, markets priced in nearly 50 basis points of Bank of England rate rises in 2026, linked to concerns about petrol-driven inflation. BoE Governor Andrew Bailey said money markets are moving ahead of the Bank by expecting a more hawkish stance.
Technically, GBP/USD stayed above the 50-, 100- and 200-day moving averages around 1.3431 and held support near 1.3436. Resistance was near 1.3492, while a break below 1.3431 would weaken the current upward bias.
On Tuesday, the UK calendar is empty, while US focus includes the ADP Employment Change 4-week average and March PPI, forecast at 4.6% year on year.
Trading Implications And Strategy
The US blockade of the Strait of Hormuz is the most critical factor right now. With Brent crude already pushing past $95 a barrel this morning, we see this directly feeding into UK inflation expectations. This situation makes the market’s pricing of 50 basis points in Bank of England rate hikes this year look less like an overreaction and more like a necessity.
This policy divergence between a hawkish BoE and a Federal Reserve expected to remain on hold is the fundamental reason for pound strength. The recent drop in US Existing Home Sales reinforces the Fed’s patient stance, creating a clear yield advantage for sterling. This makes long GBP/USD positions attractive, despite the tense global mood.
Given the binary risk of the Iran situation, we believe buying volatility is the most prudent strategy. A long straddle, purchasing both a call and a put option with the same strike price and expiry, allows traders to profit from a significant price move in either direction. An escalation could see the dollar surge, while a diplomatic breakthrough could send the pound sharply higher.
For those with a more bullish conviction, buying GBP/USD call options offers a defined-risk way to play for more upside. This allows us to participate if the pair breaks key resistance near 1.3492, while our maximum loss is limited to the premium paid if the geopolitical situation worsens. We see this as a cautious way to express a view that the BoE’s inflation fight will ultimately outweigh the risk-off sentiment.
We only have to look back to the tanker tensions in that same strait in 2019 to see how quickly things can move. Back then, we saw oil prices spike over 15% in a single day, causing sharp, unpredictable swings in currency markets. History suggests the current situation could easily cause implied volatility to double from its current levels.
Traders should also be watching the upcoming US Producer Price Index (PPI) data closely. While the market expects the Fed to hold rates steady, a much hotter-than-expected PPI reading of over 5% could force a re-evaluation. Such a surprise would challenge our bullish GBP/USD view by bringing Fed rate hikes back into the conversation.
