Sterling fell against the US Dollar to about 1.3240 in early Monday trading, its weakest level in almost two weeks. GBP/USD came under pressure amid concerns about a possible US ground invasion in Iran, which reduced demand for riskier assets. At the time of reporting, S&P 500 futures were down 0.5%, pointing to weaker market mood. The US Dollar Index (DXY) rose for a fifth straight session to near 100.35.

Geopolitical Risk Drives Risk Off Flows

A Wall Street Journal report on Thursday said the US Pentagon is considering sending 10,000 additional troops to Iran. Iranian Brigadier General Ebrahim Zolfaqari said on Iranian state TV that “US troops will be good food for sharks of the Persian Gulf”. The risk of a wider Middle East conflict raised concerns about ongoing high oil prices. Higher oil prices can weigh on currencies linked to economies such as the UK, which relies heavily on imported oil for energy. This week’s focus includes US data such as labour market indicators, especially Nonfarm Payrolls, and ISM PMI figures. These releases may affect expectations for the Federal Reserve’s policy path. We saw a similar situation unfold in 2025 when fears of a US-Iran conflict pushed the Pound down to the low 1.32s against the Dollar. That risk-off sentiment strengthened the US Dollar Index to over 100, a dynamic we see repeating today. Back then, the market reacted strongly to headlines about troop movements and warnings from military officials.

Options Strategies For Downside Protection

Those events in 2025 were followed by strong US economic data, which cemented the dollar’s strength for months. We remember that US Nonfarm Payrolls consistently beat expectations through late 2025, adding an average of 215,000 jobs per month in the final quarter. This historical pattern suggests that any strong US labor market report this week could trigger a similar, sustained move lower for GBP/USD. The risk of higher oil prices remains a key vulnerability for the UK economy, which is a net energy importer. With UK inflation already ticking up to 2.9% in the latest report for February 2026, any spike in oil from geopolitical tensions could complicate the Bank of England’s policy. This creates a headwind for Sterling that is separate from the dollar’s strength. Given this backdrop, we should consider buying GBP/USD put options to protect against a sharp drop below key support levels. This strategy provides downside protection while limiting risk to the premium paid for the option. It is a direct way to hedge against both geopolitical risk and the possibility of a surprisingly strong US jobs report. Volatility is also likely to increase in the coming weeks, just as it did during the 2025 tensions when the VIX index briefly jumped above 22. Traders could use straddle or strangle options strategies on GBP/USD. This allows us to profit from a large price move in either direction, which is ideal in a market driven by unpredictable headlines. Ultimately, we need to watch the upcoming US ISM PMI and Nonfarm Payrolls data very carefully. If these numbers confirm a robust US economy, it will likely reinforce the Federal Reserve’s current hawkish stance. This would further support the dollar and could see GBP/USD test the lows we saw last year. Create your live VT Markets account and start trading now.

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