GBP/USD traded flat near 1.3565 in the European session on Wednesday, close to the almost two-month high of 1.3590 set on Tuesday. A risk-on tone followed hopes of a permanent ceasefire between the US and Iran.
S&P 500 futures held Tuesday’s gains near 6,970, while the US Dollar Index traded near an over six-week low of 98.00. US President Donald Trump said he saw no need to extend the two-week ceasefire and expected a permanent truce could be reached within two days.
Market Focus And Key Drivers
Markets are awaiting remarks from Bank of England Governor Andrew Bailey in an IMF panel later on Wednesday. UK monthly GDP data for February is due on Thursday.
Technically, GBP/USD held above the 20-period EMA at 1.3395 and the 50% Fibonacci retracement at 1.3516. The 14-period RSI was near 62.
Support levels are seen at 1.3516 and the 38.2% retracement around 1.3432. Resistance sits at the 61.8% retracement at 1.3599, then 1.3718, with 1.3870 marked as a cycle high.
We recall this time last year, in April 2025, when market sentiment was optimistic and the pound was pushing towards a two-month high near 1.3590. Hopes for a permanent US-Iran ceasefire and a weak dollar were the main drivers for the risk-on mood. This bullish bias was a key feature of the market at that time.
Looking back, that optimism did not hold, as the pound failed to break key resistance and has since trended lower. Today, we see GBP/USD trading around 1.2450 as persistent economic headwinds have taken over. The Office for National Statistics confirmed the UK economy grew by a mere 0.1% in the first quarter of 2026, continuing a pattern of sluggish performance.
Outlook And Strategy Considerations
The contrast with 2025 is also clear in the US dollar, as the DXY, which was then near a low of 98.00, is now trading strongly around 105.50. This fundamental strength in the dollar continues to put pressure on the pound. The broad risk-on sentiment of last year has been replaced by a more cautious market stance.
Given the sluggish UK growth and the strong dollar, we believe buying call options on GBP/USD is an unattractive strategy right now. Any rallies in the pound will likely face significant resistance, particularly around the 1.2550 level. Traders might instead consider strategies that benefit from sideways movement or further weakness.
With UK inflation still above target at 2.8% and the Bank of England’s base rate at 4.75%, the path for future interest rate moves is very uncertain. This economic backdrop could lead to sharp price swings in the coming weeks. We therefore see an opportunity in using options to hedge against sudden moves or to position for an increase in volatility.
