GBP/USD edged up to about 1.3290 in early European trading on Thursday, with attention on the UK employment report and the Bank of England rate decision. Gains may be capped by Middle East tensions and a firmer US Dollar. The Middle East conflict lifted WTI to near $100 a barrel, supporting safe-haven demand for the US Dollar. Bloomberg said Iran and Israel traded strikes on key energy facilities, after an IRGC warning that some Gulf energy sites would be “legitimate targets” following an attack on South Pars gas field facilities.

Technical Picture For Sterling

GBP/USD fell about 0.7% on Wednesday, dropping below 1.3300 and extending a pullback from a late-January high near 1.3870. The pair is now below its key daily moving averages, and recent price action turned lower. The Fed held rates at 3.50% to 3.75% and kept a projection of one cut in 2026, while the 2026 core inflation forecast rose to 2.7% from 2.5%. US headline PPI rose 0.7% month-on-month versus a 0.3% consensus. GBP/JPY fell 0.20% on Wednesday and traded at 211.82 after reaching 212.73 earlier in the day. It previously tested 215.00, dipped near 207.00, and has been consolidating in a 210.00–214.00 range while holding above the 50- and 20-day SMAs, with RSI above 50. Given the pound’s precarious position around 1.3290, the immediate focus should be on the upcoming Bank of England decision. The combination of Middle East tensions pushing oil towards $100 a barrel and a hawkish US Federal Reserve creates significant headwinds for Sterling. This uncertainty suggests that implied volatility in GBP options is likely to increase in the coming days.

Volatility Strategies Ahead Of Boe

We should consider buying volatility ahead of the BoE announcement, as a surprise move could cause a sharp price swing in either direction. Looking back at historical stress periods, we saw the VIX index spike above 35 during the onset of the Ukraine conflict in 2022, which translated to wider swings in currency markets. A similar environment is building now, making strategies like long straddles or strangles on GBP/USD potentially profitable. The fundamental outlook favors a weaker pound against the dollar, as the Fed’s commitment to a single 2026 rate cut is a powerful signal. With the latest US Core PCE data from February showing inflation holding at 2.8%, the Fed’s hawkish stance is well-supported. We should therefore look at buying GBP/USD put options to position for a break below the recent lows. In the UK, recent data from the Office for National Statistics showed consumer price inflation remained sticky at 3.1% in February, putting the BoE in a difficult position. This economic backdrop, combined with the Fed’s resolve, reinforces the case for a stronger dollar. Selling GBP/USD futures contracts or using bearish option spreads could capitalize on this growing policy divergence. The risk-off sentiment is also boosting the Japanese Yen, which is pressuring the GBP/JPY cross despite its technically bullish setup. We saw WTI crude oil prices surge toward $130 a barrel in March 2022 on geopolitical fears, and a sustained move toward $100 now would likely intensify haven flows into the Yen. Hedging long GBP/JPY positions or initiating speculative shorts through put options appears prudent until the conflict de-escalates. Create your live VT Markets account and start trading now.

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