GBP/USD edged up to around 1.3260 in Asian trading on Monday after four straight daily falls. Risk-linked pairs found some support after the Guardian reported that US Energy Secretary Chris Wright expects the US-Israel conflict with Iran to end within “the next few weeks”, which could help oil supply recover and ease energy prices. Sterling may stay pressured because higher energy costs can weigh on the UK outlook. Markets are also weighing weak UK data, the Middle East conflict, and possible effects on Bank of England policy.

Uk Data And Sterling Pressure

Office for National Statistics data showed the UK economy was flat in January, missing forecasts for 0.2% growth. Services were unchanged and production fell by 0.1%. Despite softer growth, higher energy prices have led markets to price in a 25-basis-point Bank of England rate rise by the end of the year. GBP/USD could also face downside if the US Dollar strengthens on safe-haven demand amid rising oil prices. Over the weekend, US forces were reported to have targeted every military site on Kharg Island, an Iranian oil export hub. President Donald Trump said oil infrastructure was not hit, while Iran warned it could respond against any US-linked oil facilities in the region. Given the current situation on March 16, 2026, the recent pause in GBP/USD’s decline around 1.2450 appears fragile. Renewed tensions in the Strait of Hormuz are pushing Brent crude back towards $95 a barrel, and this renewed energy price pressure directly threatens the UK’s economic outlook. We should anticipate that any relief for the pound will likely be short-lived.

Trading And Hedging Implications

This environment of high uncertainty is a strong signal to buy volatility. With the Bank of England caught between fighting inflation and stimulating a stagnant economy, implied volatility on GBP/USD options is likely to rise from its current lows. Looking back, we saw volatility in the pair spike over 30% during the initial energy crisis of 2025, and a similar environment is now building, suggesting that long straddle or strangle positions could be profitable. The persistent weakness in the UK economy, evidenced by the recently confirmed 0.1% contraction in Q4 2025, points towards a bearish stance on the pound. Derivative traders should consider buying GBP/USD put options with expiries in the next one to three months to protect against or profit from a slide towards the 1.2200 level. The cost of these puts remains relatively cheap, offering an attractive risk-reward profile. Furthermore, the latest UK inflation data for February coming in at a stubborn 3.5% all but removes the possibility of a Bank of England rate cut in the first half of the year. This stagflationary pressure weighs heavily on sterling, as tight monetary policy chokes off what little growth exists. We should therefore watch for opportunities to enter bearish risk reversals, which involves selling an out-of-the-money GBP call to finance the purchase of a downside put. On the other side of the pair, the US Dollar is reasserting its safe-haven status. The strong US jobs report for February, which showed the economy adding another 265,000 jobs, confirms the Federal Reserve has little reason to cut rates aggressively. This policy divergence with the Bank of England creates a fundamental reason to be long the dollar and short the pound. Therefore, traders with exposure to pound-denominated assets should be actively hedging their currency risk. Corporations expecting payments in GBP should consider using forward contracts or buying put options to lock in current rates. We saw a similar dynamic when energy prices first spiked back in 2025, and those who failed to hedge faced significant losses as the pound weakened. Create your live VT Markets account and start trading now.

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