GBP/USD rose by more than 0.59% on Wednesday after an Axios report said the US and Iran were close to a deal to end the war. The US dollar fell after the report.
The move came despite US jobs data beating estimates. This could lead the Federal Reserve to keep its focus on inflation.
Geopolitics Versus Data
GBP/USD traded at 1.3614 after rebounding from a daily low of 1.3531.
We remember seeing GBP/USD jump toward the 1.36 level back in 2025, when talk of a US-Iran deal temporarily overshadowed very strong US jobs data. That moment showed us how geopolitical headlines can briefly overpower clear economic fundamentals. Now, in May 2026, we are witnessing a similar tension between global events and central bank policy.
The US dollar has been resilient this year, but recent data shows a potential shift. The latest US Non-Farm Payrolls report for April 2026 added just 175,000 jobs, falling short of the 240,000 consensus and cooling expectations for further Fed hawkishness. Meanwhile, UK inflation remains sticky, with the last CPI reading holding above 3%, putting pressure on the Bank of England.
This divergence suggests volatility in GBP/USD is likely to increase from its current low levels. Implied volatility for one-month options is sitting near 7.8%, which is low compared to the peaks above 10% we saw during the uncertainty of late 2025. This suggests that buying options, such as straddles, could be a relatively cheap way to position for a significant breakout in the coming weeks.
Risk Defined Trading
For traders with a directional bias, the weakening US jobs data could give the pound an edge. Buying GBP/USD call options with a strike price around 1.3800 offers a defined-risk way to bet on sterling strength through the summer. Historically, periods where Fed expectations soften while Bank of England expectations firm up have often preceded sustained pound rallies, as seen in the second half of 2023.
However, the lesson from 2025 is that news-driven rallies can evaporate if the underlying story does not materialize. That US-Iran deal never fully formed, and the dollar eventually recovered based on the strong economic reality. Therefore, using derivative strategies that clearly define your maximum loss is a prudent approach in this environment.
