GBP/USD traded near 1.3430 in the Asian session on Thursday, showing little change and staying close to a weekly high reached on Wednesday. Trading was cautious as markets weighed mixed signals on US–Iran talks.
US President Trump said the US was in the “final stages” of talks with Iran, and Vice President JD Vance said Iran wanted a deal. Later comments about further military action, along with disputes over Iran’s nuclear programme and the Strait of Hormuz, supported demand for the US dollar.
Market Focus And Risk Drivers
Minutes from the Federal Reserve’s 28–29 April meeting showed most policymakers would consider tighter policy if inflation stays above the 2% target. Markets still price in a 25 bps US rate rise in 2026, which also supported the US dollar.
In the UK, the next Bank of England rate rise is now expected in December after softer inflation data. The ONS said CPI eased to 2.8% year on year in April from 3.3% in March, below the 3% forecast, and the unemployment rate rose to 5.0%.
Attention turns to BoE Governor Andrew Bailey, plus flash PMIs from the UK and US. GBP/USD recently rebounded from around 1.3300, the lowest since 8 April, touched on Monday.
Given the diverging paths of the US Federal Reserve and the Bank of England, we see the current level of GBP/USD around 1.3430 as an opportunity to position for downside. The fundamental driver is the widening policy gap, which favors a stronger US dollar. This makes the recent bounce from the 1.3300 low appear fragile.
The Fed’s hawkish stance is supported by persistent inflation, with recent data showing Core PCE, their preferred measure, holding firm at 2.7% for the second consecutive quarter. This makes their intention to raise rates in 2026 highly credible, while geopolitical tensions with Iran add a safe-haven bid for the dollar. We should therefore consider any positive news on an Iran deal as a temporary headwind for the dollar, not a change in the primary trend.
Options Positioning And Trade Expression
On the other side of the pair, the UK economy is showing clear signs of slowing. The surprise jump in unemployment to 5.0% reverses the steady improvements we saw through 2024 and 2025, and the sharp drop in CPI to 2.8% gives the Bank of England every reason to remain on hold. We remember the extreme volatility caused by the political crisis in 2022, and the current political instability only adds to the pound’s weakness.
For derivative traders, this suggests buying GBP/USD put options with a strike price around 1.3350, targeting a move back towards the April lows in the coming weeks. This strategy limits risk while providing exposure to a weaker pound. Alternatively, selling call option spreads with a ceiling around 1.3500 could be used to generate income, betting that the pair’s upside is capped.
We will be watching the upcoming flash PMI data and listening to Governor Bailey for any new information. However, we would view any resulting strength in the pound as a better entry point to initiate short positions. The underlying economic momentum strongly suggests the path of least resistance for GBP/USD is lower.
