GBP/USD rose about 0.28% on Thursday and traded near 1.3627, extending gains for a third day. The move followed reports of a possible US-Iran peace deal that could reopen the Strait of Hormuz, while leaving issues such as the nuclear programme unresolved.
US Initial Jobless Claims for the week ending 2 May came in at 200K, versus 205K expected and 190K previously. Challenger job cuts increased from 60.62K in March to 83.687K in April.
Fed Signals Rates May Stay On Hold
Federal Reserve officials said the labour market remains stable, though not at maximum employment. Cleveland Fed President Beth Hammack said rates may stay on hold for “quite some time”, and that policy messaging should not lean towards either cuts or hikes.
In the UK, local elections are in focus, with expectations that Prime Minister Keir Starmer’s party will lose heavily. Reports also linked pressure on Starmer to criticism over the appointment of Peter Mandelson as UK ambassador to the US, and Mandelson’s appearance in the first batch of Epstein files.
Markets are watching further Fed speeches and Friday’s Nonfarm Payrolls, forecast at 62K jobs in April. Technical levels referenced include 1.3607, 1.3492, 1.3436, 1.3417, and a Fed Sentiment Index near 132.
We are seeing the US Dollar weaken primarily on hopes of a US-Iran peace deal, which is lifting GBP/USD despite strong US jobless claims. This headline-driven market is overriding fundamental data for now, but sentiment can shift rapidly. The pair is testing the 1.3600 level, and we should be prepared for increased volatility.
Payrolls And Politics Set Up Volatility
The upcoming Nonfarm Payrolls report is the most critical event, with a forecast of only 62,000 jobs. Considering that US job growth averaged over 230,000 per month during 2024, this low forecast signals a major potential slowdown. A significant beat or miss on this number will almost certainly cause a sharp move, as the Fed remains data-dependent and uncertain about its next step.
On the other side of the pair, we face significant risk from the UK local elections. We must remember how political uncertainty has punished the pound in the past, such as the sharp declines seen during the 2022 leadership crisis. A poor showing for the Prime Minister could easily erase the recent gains in GBP/USD, regardless of dollar weakness.
Given these conflicting drivers, traders should consider using options to trade the expected volatility rather than picking a firm direction. Buying a straddle, which involves purchasing both a call and a put option, could be an effective strategy to profit from a large price swing following the election results or the payrolls data. Implied volatility for GBP/USD options is rising, reflecting the market’s anticipation of a significant move.
The technical break above the 1.3436 resistance level is encouraging for bulls, but key support now lies around the 1.3492 trend line. A dip below this level would suggest the UK political fears are beginning to outweigh the geopolitical optimism. We should use these levels to structure our trades, positioning for a sharp move but with defined risk.
