GBP/USD rose for a second day, with dip-buying near the 1.3500 level taking it to a more than one-week high in Monday’s Asian session. It traded just below the mid-1.3500s, up 0.10% on the day, with 1.3600 cited as a possible target.
The US Dollar weakened on reports that Iran gave the US a new proposal on reopening the Strait of Hormuz and ending the war. Falling oil prices also reduced inflation concerns and cooled expectations for a hawkish US Federal Reserve, adding pressure to the Dollar.
BoE Tightening Expectations
Support for the Pound came from expectations of further Bank of England policy tightening this year. In a separate update, GBP/USD was reported trading around 1.3520 in Asian hours, after trimming losses.
That report linked Pound weakness to stalled US–Iran peace talks. Bloomberg reported on Sunday that US President Donald Trump called off a delegation to Pakistan to potentially discuss directly with Iran; Trump said, “If they want to talk, they can come to us, or they can call us.”
It also said Trump told Jared Kushner and Steve Witkoff on Saturday to skip the trip, and that Iran “offered a lot, but not enough.” Iranian President Masoud Pezeshkian said Iran won’t enter “imposed negotiations under threats or blockade.”
We saw similar volatility back in 2025 when the GBP/USD pair fluctuated heavily around the 1.3500 mark based on US-Iran headlines. Today, the fundamental conflict remains the same, but the specific drivers and price levels have shifted. The pair is currently struggling to hold above 1.2850, a far cry from those previous highs.
Macro And Volatility Setup
The US Dollar is finding support from persistent geopolitical tensions in the South China Sea, which is creating a risk-off sentiment. However, the latest US CPI data released last week showed core inflation cooling to 2.5%, reducing pressure on the Federal Reserve to consider further rate hikes this year. This has capped the dollar’s potential gains for now.
Meanwhile, the British Pound is underpinned by domestic factors. The most recent ONS statistics show UK inflation remains sticky at 3.1%, well above the Bank of England’s target. This data reinforces market expectations that the BoE will be one of the last major central banks to cut rates, lending underlying strength to Sterling.
Given this push-and-pull dynamic, derivative traders should anticipate continued range-bound price action in the coming weeks. We are seeing implied volatility for one-month options contracts tick higher, suggesting the market is pricing in choppy conditions rather than a clear directional breakout. This environment is favorable for strategies like selling strangles outside of an expected 1.2750-1.2950 range.
The interest rate differential between the UK and the US also presents an opportunity. With the BoE holding firm while the Fed softens its stance, the positive carry for holding GBP against USD is widening. Traders could use forward contracts to lock in this differential, which creates a natural floor for the currency pair.
