The Pound Sterling slipped against major currencies, easing to about 1.3350 versus the US Dollar during European trading on Thursday. Moves followed a risk-off tone after Iran rejected US President Donald Trump’s 15-point settlement plan and a month-long ceasefire proposal.
S&P 500 futures fell 0.7% to near 6,545, pointing to weaker risk appetite. The US Dollar Index (DXY) held near Wednesday’s high around 99.70.
The Wall Street Journal reported that Tehran declined the proposal passed via Pakistan and set out conditions for talks. These included a new order in the Strait of Hormuz to allow transit fees, guarantees the war would not restart, and an end to Israeli strikes on Hezbollah.
The same report said a US official described the demands as “ridiculous and unrealistic”. The stance raised concerns that conflict may persist, keeping oil supply disrupted.
In the UK, households may face ongoing high inflation as energy prices rise due to disruption in shipments through the Strait of Hormuz. Bank of England Deputy Governor Sarah Breeden said the current energy shock differs from the 2022 shock and may affect inflation and jobs, with more clarity expected by the April meeting.
With geopolitical risk firmly back on the table, volatility is the most direct trade. The rejection of the ceasefire proposal creates uncertainty, and we should consider buying protection against sharp market swings. The VIX index has already climbed over 15% this week to 24.5, a level we have not seen since the banking sector concerns in late 2025.
The Pound Sterling is particularly vulnerable, caught between rising energy inflation and the Bank of England’s hesitation. BoE reluctance to raise rates aggressively, a lesson learned from the turmoil in 2022, means the currency has little support. We see growing interest in derivatives that profit from a fall, such as put options on GBP/USD with strike prices below 1.3200.
Fears over the Strait of Hormuz translate directly into a bullish case for oil derivatives. Any prolonged disruption will keep energy prices elevated, feeding the inflation that worries households and central banks alike. Brent crude futures have already rallied past $95 a barrel this month, and we expect call options to remain in high demand.
For the broader stock market, this risk-off mood suggests a defensive posture is now necessary. The drop in S&P 500 futures signals that investors are reducing their exposure to equities, a trend we expect to continue in the coming weeks. We should be looking to hedge portfolios by buying put options on major indices like the FTSE 100.
As a classic safe-haven asset, the US Dollar is strengthening, with the DXY climbing toward the 100.00 mark. This is a flight to safety that we have seen many times before, most recently during the flare-up in the South China Sea last year. Using futures or options to bet on continued dollar strength against a basket of currencies appears to be a prudent strategy.
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