USD/CHF rose 0.13% to near 0.7830 in the Asian session on Monday as the US Dollar strengthened. The US Dollar Index (DXY) was up 0.1% at about 98.30.

Iran said it would not attend a second round of talks with the United States, according to the Islamic Republic News Agency (IRNA). IRNA cited “excessive demands, unrealistic expectations, constant shifts in stance, repeated contradictions, and the ongoing naval blockade”.

Geopolitical Tensions Drive Safe Haven Flows

Earlier, US President Donald Trump said Iran had breached ceasefire terms in a Truth Social post. He said Iran fired at a French ship and a freighter from the United Kingdom.

Markets are also waiting for US Retail Sales data for March, due on Tuesday. Retail Sales are forecast to rise 1.3% month-on-month, up from 0.6% previously.

We remember looking back to 2025 when Mideast tensions pushed USD/CHF up towards 0.7830. The US Dollar became the preferred safe haven then, even over the Swiss Franc. That period showed us how geopolitical flare-ups can quickly shift currency dynamics away from fundamentals.

Today, the situation is driven more by central bank policy divergence, with the pair trading much higher around 0.9150. The Swiss National Bank surprised markets with a rate cut last month to 1.25%, while the Federal Reserve is holding steady as US inflation hovers at a persistent 2.8%. This difference in policy is creating a strong underlying bid for the US Dollar against the Franc.

Options Strategies For Volatility And Momentum

For traders, this points towards strategies that can benefit from continued upward momentum and heightened uncertainty. One-month implied volatility on USD/CHF options has climbed to 9.5%, reflecting market nervousness about potential central bank surprises and global risks. Buying call options or setting up bull call spreads could be a way to capture further upside while defining risk.

We also see value in using options to hedge against any sudden reversal, should upcoming US inflation data show an unexpected cooling. The next US CPI release is critical and could cause a sharp move if it misses expectations. Therefore, purchasing some out-of-the-money put options could offer cheap protection against a dollar downturn in the coming weeks.

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Asian equities rose on Monday even as renewed conflict in the Strait of Hormuz drove oil prices sharply higher. Higher oil prices raised inflation worries and increased the chance of further central bank rate rises.

Japan’s Nikkei 225 was nearly 1% higher at 59,050. Hong Kong’s Hang Seng Index rose 0.60% to above 26,300.

China’s SSE Composite gained 0.59% to near 4,070. South Korea’s Kospi advanced 1.30% to near 6,270.

Asian Market Moves

India’s GIFT Nifty was up 0.14% at 24,450, pointing to a positive-to-flat open for the Nifty Index. Traders were expected to remain cautious due to ongoing uncertainty.

Iran briefly indicated on Friday that the Strait would reopen, but reversed course on Saturday. This followed US President Donald Trump refusing to lift the blockade on Iranian ports.

Iran’s military said the US breached a ceasefire by firing on an Iranian commercial vessel and said it would retaliate. Trump said the US Navy fired on and seized an Iranian-flagged cargo ship in the Gulf of Oman after it did not stop when ordered.

Geopolitical Risk And Volatility

Trump said on Truth Social that US officials would go to Islamabad for talks with Iran on Monday. IRNA reported that Tehran has declined to resume negotiations, citing “unrealistic expectations”.

Given the sharp rise in oil prices and the breakdown in US-Iran talks, we see a clear case for buying volatility over the coming weeks. The CBOE Volatility Index (VIX) has already surged over 30% to 22.5 this morning, reflecting rising market anxiety. Any further military escalation in the Gulf of Oman would likely send implied volatility even higher across asset classes.

The most direct trade is a bullish position on crude oil, with West Texas Intermediate futures already pushing past $98 a barrel. We remember how a similar, smaller disruption in the fall of 2025 caused a 15% spike in oil prices in under two weeks. Considering that over 20% of global oil supply transits the Strait of Hormuz, we are positioning for higher prices through long call options.

We should be wary of the current optimism in Asian equities, as sustained high energy prices will inevitably feed into global inflation figures. This could force central banks, including the Federal Reserve, to delay anticipated rate cuts or even adopt a more hawkish tone. Protective put options on broad market indices like the S&P 500 are a prudent hedge against a potential downturn driven by these inflation fears.

This kind of geopolitical instability typically triggers a flight to safety, which benefits the US dollar. The dollar index (DXY) is already showing signs of strength, and we anticipate it will test recent highs. This suggests a cautious stance on emerging market currencies, which are often negatively impacted by both a stronger dollar and higher energy import costs.

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The US Dollar Index (DXY), which tracks the US Dollar against six major currencies, traded near 98.30 in Asian hours on Monday. It posted mild gains linked to renewed US-Iran tensions.

Iran’s Foreign Ministry spokesman Esmail Baghaei said a US blockade of Iran’s ports and coastline is an act of aggression that breaches the ceasefire, according to the Guardian. Iran also said on Sunday that it does not plan to join a second round of talks with the US.

Geopolitical Risk Lifts The Dollar

US President Donald Trump ordered US negotiators to travel to Pakistan a few days before a Middle East ceasefire is due to expire on 22 April. Reports of weaker prospects for a peace deal supported demand for the US Dollar as a safe-haven currency.

US Retail Sales data is due on Tuesday. Retail Sales is forecast to rise 1.3% month-on-month in March, up from 0.6% in February. A softer-than-expected inflation outcome could weigh on the DXY in the near term.

The US Dollar Index (DXY) is trading near 104.50 as we face a mix of geopolitical uncertainty and questions over the Federal Reserve’s interest rate path. This environment of pulling and pushing forces creates significant potential for sharp moves in the dollar. For derivative traders, this means volatility is the key theme for the coming weeks.

We are seeing a renewed flight to safety reminiscent of past events, such as the US-Iran tensions back in 2020. Current disruptions around the Bab el-Mandeb Strait and tense naval exercises in the South China Sea are pushing investors toward the dollar. This safe-haven demand is providing a strong floor for the DXY, preventing any significant sell-offs.

Options Markets Signal Higher Volatility

However, the economic data at home is painting a conflicting picture for the Fed. The latest CPI report showed inflation remains sticky at 3.4%, suggesting rates should stay high, which is bullish for the dollar. Conversely, last week’s retail sales report was weaker than expected, showing only a 0.2% increase and hinting at a cooling economy.

This conflict between inflation and growth is making options pricing particularly sensitive. Implied volatility on dollar-related pairs has been rising, so traders should consider strategies that benefit from this, such as long straddles on currency ETFs like UUP. Traders who are more directional may look at DXY call options to bet on geopolitical risk winning out, or puts if they believe a slowing economy will force the Fed to signal a rate cut sooner than expected.

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AUD/USD opened on Monday with a bearish gap to about 0.7115, then rebounded and moved back above the mid-0.7100s in Asia. It has paused after pulling back from Friday’s peak near 0.7220, the highest level since June 2022.

The US dollar started the week firmer amid renewed US-Iran tensions around the Strait of Hormuz, which weighed on AUD/USD early on. Reduced expectations of a US Federal Reserve rate rise limited further US dollar gains, while the Reserve Bank of Australia’s hawkish outlook supported the Australian dollar.

Technical Outlook And Key Levels

Technically, the pair has risen strongly from the 100-day simple moving average and broke above the 0.7115 resistance last week. Buying interest around 0.7115, now seen as support, points to a continued upward bias.

Momentum signals lean positive, with MACD above its signal line and RSI near 62, which does not indicate overbought conditions. A move above 0.7200 could open the way to a retest of 0.7220–0.7225.

Support is first seen near 0.7115, with further support around 0.7100. The 100-day SMA is near 0.6900.

Looking back at the bullish technical setup from early 2025, we remember the strong momentum that carried the AUD/USD past the 0.7115 level. The positive signals from indicators like the MACD and RSI were valid at the time, supporting a continued push. That analysis correctly identified the near-term path of least resistance as being to the upside.

However, that rally toward 0.7225 proved to be a peak as the fundamental outlook shifted later that year. The Reserve Bank of Australia paused its hiking cycle sooner than anticipated, while the US Federal Reserve maintained a restrictive stance longer than the market priced in. This divergence in central bank policy eventually unwound the Aussie’s strength through the second half of 2025.

Derivatives Strategy Considerations

Today, on April 20, 2026, the situation is completely different, with the pair trading near 0.6550. We now see Australian inflation down to 3.1%, with markets pricing in a 75% chance of an RBA rate cut by August. In contrast, US inflation is holding firmer at 2.8%, making the Fed cautious about easing policy too soon.

For derivative traders, this environment suggests positioning for either further downside or range-bound activity. One-month implied volatility for AUD/USD is currently at a relatively low 8.5%, making it cheaper to buy options than it was a year ago. This presents an opportunity to structure trades with a favorable risk-reward profile.

Given the dovish RBA sentiment, traders anticipating a break lower could consider buying put options targeting the 0.6400 level. Alternatively, constructing bear put spreads would reduce the upfront cost while still profiting from a modest decline. This strategy defines the risk should a surprise geopolitical event or a shift in Fed language cause a dollar downturn.

For those who believe the major central bank moves are already priced in, the low volatility makes selling options attractive. A short strangle, selling both an out-of-the-money call and put, could be a viable strategy to collect premium. This would be profitable if we expect the AUD/USD to consolidate in its current 0.6500-0.6650 range ahead of the next major economic data releases.

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Silver traded near $80.50 per troy ounce in Asian hours on Monday, trimming losses but staying in negative territory. Tensions around the Strait of Hormuz lifted oil prices, adding to inflation worries and raising the chance of further central bank rate rises.

Iran’s military said the United States breached a ceasefire by firing on an Iranian commercial vessel, according to Bloomberg. Iran warned of imminent retaliation for what it called “maritime aggression”.

Strait Of Hormuz Escalation

US President Donald Trump said the US Navy fired on and seized an Iranian-flagged cargo ship in the Gulf of Oman. He said the ship failed to comply with orders to stop while leaving Hormuz.

Iranian state media IRNA reported that Tehran has declined to resume negotiations with US officials, citing “unrealistic expectations”. Trump said US officials will travel to Islamabad for talks with Iran on Monday.

Iran briefly said on Friday that the strait would reopen, then reversed that on Saturday after Trump refused to lift the blockade on Iranian ports. Trump also criticised Iran’s decision to re-close the strait and renewed threats to target Iranian infrastructure, including power plants and bridges.

Given the high tension in the Strait of Hormuz, we should anticipate a significant spike in market volatility in the coming weeks. The CBOE Volatility Index (VIX), which has been hovering around 19, could easily surge above 30, a level we haven’t seen since the banking turmoil back in 2025. This environment suggests that buying options, rather than outright futures, may be a prudent way to manage risk and define potential losses.

Trading And Hedging Implications

The situation with silver at $80.50 is complex, as the metal is caught between two powerful forces. While geopolitical chaos typically boosts safe-haven assets, the fear of aggressive Federal Reserve rate hikes to combat oil-driven inflation is currently winning, strengthening the dollar and pressuring non-yielding silver. We saw a similar dynamic in 2022 when the Fed’s initial aggressive hikes temporarily capped precious metal gains despite high inflation, so traders should consider buying puts on silver or establishing straddles to play the expected price swings.

The most direct trade is to be long crude oil, as any disruption to the Strait of Hormuz directly chokes global supply. This geopolitical shock has already sent WTI crude prices surging over 25% in the past month, breaking through the $110 per barrel resistance level not seen since late 2024. Buying call options on oil futures or related ETFs provides direct exposure to further escalation with a capped downside if a diplomatic solution suddenly materializes.

Consequently, we must prepare for a downturn in broader equity markets. The combination of soaring energy costs and the prospect of higher interest rates creates a powerful headwind for corporate earnings and stock valuations. Shorting S&P 500 futures or buying put options on major indices is a logical hedge against the stagflationary risk that now looms over the economy.

This environment strongly favors the US dollar, which benefits from both a flight to safety and rising interest rate expectations. After the Federal Reserve brought rates to 6.0% last year, the market had priced in a pause, but that is now being reconsidered. We should expect the Dollar Index (DXY) to push towards the highs we saw in late 2025, making long dollar positions against currencies with more dovish central banks an attractive strategy.

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WTI, the US crude oil benchmark, traded near $86.70 during Asian hours on Monday. Prices rose amid renewed tensions between the US and Iran in the Strait of Hormuz.

Iran’s military said the US violated a ceasefire by firing at an Iranian commercial ship, according to Bloomberg. Iran said it would respond to what it called maritime and armed robbery by the US military.

Renewed Strait Of Hormuz Tensions

On Sunday, Iran said it would not take part in new peace talks with the US. This came hours after US President Donald Trump said Iranian negotiators would go to Pakistan on Monday for a second round of talks.

Market focus is also on the American Petroleum Institute (API) inventory report due on Tuesday. A larger-than-expected crude draw can suggest stronger demand and support prices, while a bigger build can point to weaker demand or excess supply and pressure prices.

WTI stands for West Texas Intermediate and is one of three major crude types, alongside Brent and Dubai. It is a light, sweet crude sourced in the US and distributed via the Cushing hub.

WTI prices are driven mainly by supply and demand, OPEC decisions, political unrest, and the US Dollar. API reports are released on Tuesdays and EIA data follows a day later, with results within 1% of each other 75% of the time.

Market Risks And Key Drivers

With West Texas Intermediate crude holding firm around $86.70, we are watching renewed tensions in the Strait of Hormuz closely. Last week’s incident involving a US naval vessel and an Iranian commercial ship has put the market on edge. This situation introduces a geopolitical risk premium that could easily push prices toward $90 in the short term.

We remember the market volatility during similar standoffs with Iran back in 2025, which created sharp, unpredictable price swings. This is also reminiscent of the supply fears following the events of 2022, which taught us how quickly geopolitical conflict can add $10 or more to a barrel of oil. This history suggests that any escalation in the Strait of Hormuz will have an immediate and significant impact on prices.

Beyond the Middle East, we are seeing signs of solid demand which supports these higher prices. China’s latest Caixin Manufacturing PMI, released in early April 2026, came in at 51.2, signaling continued expansion in the world’s largest oil-importing nation. This underlying economic strength provides a stable floor for crude prices, even without the current geopolitical threats.

However, the strength of the US Dollar is a factor we must watch. After March 2026 inflation data came in hotter than expected, the Dollar Index (DXY) has climbed to a six-month high of 106.50. A stronger dollar traditionally acts as a headwind for oil, making it more expensive for foreign buyers and potentially capping a major price rally.

On the supply side, OPEC+ has maintained its production cuts, but we see US output continuing to climb, recently hitting a record 13.4 million barrels per day according to the latest EIA report. This robust non-OPEC supply is a key reason prices have not broken out above $90 despite the global tensions. This tug-of-war between OPEC discipline and US production will continue to define the upper limits of the market.

This week, we are focused on the American Petroleum Institute (API) report due on Tuesday. Market consensus expects a crude inventory draw of about 2.1 million barrels, which would be bullish. We will be paying close attention to gasoline inventories, as a surprise build could signal weakening consumer demand ahead of the summer driving season.

Given these conflicting signals, we expect implied volatility to rise in the coming weeks. For derivative traders, this makes strategies like buying straddles or strangles attractive to capitalize on a significant price move, regardless of direction. For those with a bullish bias, bull call spreads could offer a defined-risk way to profit from a potential grind higher toward the $90 level.

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USD/CAD opened with a modest bearish gap on Monday, then rose back above 1.3700 in the Asian session. The move ended a five-day decline after Friday’s drop to just below the mid-1.3600s, the lowest level since 13 March.

Tension between the US and Iran around the Strait of Hormuz increased risk aversion and supported the US Dollar after Friday’s rebound from a near two-month low. Higher crude oil prices supported the Canadian Dollar and limited further gains in the pair.

Strait Of Hormuz Developments

Iran said it is closing the Strait of Hormuz again to commercial vessels and that ships approaching it will be targeted. This followed an escalation of the US naval blockade of Iranian ports, which Iran described as a breach of the ceasefire, and it cited this as a reason for cancelling a second round of peace talks.

The developments raised supply concerns and pushed oil prices higher. The US Dollar then eased from a one-week high as expectations of a Federal Reserve rate rise fell, which also restrained USD/CAD.

A correction was issued on 20 April at 02:30 GMT to amend the title to “the Canadian Dollar retreats from over one-month high vs USD”, not “one-month low”.

We remember this time last year when tensions in the Strait of Hormuz created mixed signals for the USD/CAD pair. The market was caught between a flight to the safe-haven US dollar and the strengthening effect of higher oil prices on the Canadian loonie. This dynamic led to choppy trading around the 1.3700 level.

Central Bank Policy Divergence

Today, while the geopolitical situation is quieter, the influence of energy prices remains a key factor for traders. With West Texas Intermediate (WTI) crude oil currently trading firmly above $95 a barrel, significantly higher than the average price in early 2025, the Canadian dollar has a strong underlying support. This persistent strength in oil is a constant headwind for anyone expecting a major rally in USD/CAD.

The dominant theme now, however, is the divergence in central bank policy, a factor that was only beginning to emerge last year. The Bank of Canada is now openly discussing rate cuts to support a slowing economy, whereas recent US inflation data, like last month’s 3.1% year-over-year CPI reading, has forced the Federal Reserve to maintain a hawkish stance. This policy gap is the main reason we see the pair trading above 1.3800 today.

For the coming weeks, we believe selling cash-secured puts on USD/CAD could be a viable strategy to take advantage of high volatility. This allows traders to collect premium while setting a target to buy the pair on any potential dips caused by oil price strength. Alternatively, buying call option spreads can offer a cost-effective way to position for further upside driven by central bank policy, while capping potential losses.

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NZD/USD trimmed earlier losses and traded near 0.5880 in Asian hours on Monday, moving back towards 0.5900. The move followed New Zealand trade figures showing a March monthly surplus of NZD 698 million, after a NZD 365 million deficit in February.

New Zealand’s annual trade deficit was NZD 3.2 billion in March, compared with NZD 3.1 billion a month earlier. Exports rose 7.3% year-on-year to a record NZD 7.94 billion, while imports increased 9.6% to NZD 7.25 billion.

China Policy Rates Unchanged

In China, the People’s Bank of China left Loan Prime Rates unchanged on Monday. The one-year LPR stayed at 3.00% and the five-year LPR remained at 3.50%.

The pair also faced pressure as the US Dollar gained support from safe-haven demand linked to renewed US–Iran tensions. IRNA reported that Iran refused to restart talks with US officials, citing “unrealistic expectations”.

Iran has kept the Strait of Hormuz blocked since US and Israeli strikes on February 28. A brief reopening signal on Friday was reversed on Saturday after President Donald Trump declined to lift the blockade on Iranian ports.

Trump said on Truth Social that US representatives will travel to Islamabad for negotiations with Iran on Monday. He also warned of possible action against Iranian infrastructure, including power plants and bridges.

Risk Sentiment And Market Volatility

We see the positive New Zealand trade surplus being overshadowed by the larger geopolitical risks. The record high exports are a strong domestic signal, but the escalating US-Iran tensions are driving a flight to safety in the US Dollar. This global risk-off sentiment is likely to be the dominant driver for NZD/USD in the near term.

The conflicting economic and political news is a recipe for increased price swings. We anticipate implied volatility in the currency markets will rise, especially for pairs sensitive to global trade and risk. This environment suggests that buying options to play the volatility may be a more prudent strategy than taking a simple directional bet.

The blockage of the Strait of Hormuz is a major threat to global energy supplies, as historically over 20 million barrels of oil pass through it each day. We saw a similar dynamic during the initial phases of the Ukraine conflict in 2022, where spiking energy prices and uncertainty boosted the US Dollar significantly. A prolonged closure would likely repeat this pattern, putting further downward pressure on the Kiwi.

While China holding its loan prime rates steady provides some stability, it does not inject new stimulus into its economy. New Zealand’s economic health is closely tied to Chinese demand, making the Kiwi vulnerable to any slowdown in its largest trading partner. The lack of new support from the PBoC makes the foundation for New Zealand’s record exports appear less secure.

The US Dollar remains the ultimate safe-haven asset during times of international crisis. We recall the US Dollar Index (DXY) reaching multi-decade highs in 2022 amid global turmoil, and the current situation with Iran could fuel a similar rally. President Trump’s aggressive rhetoric combined with stalled negotiations points toward continued USD strength.

Given these factors, our focus shifts to strategies that either protect against or profit from a decline in NZD/USD. We are looking at buying put options on the pair to capitalize on potential downside with a defined risk. A long straddle is also under consideration to benefit from a significant move in either direction, which seems likely given the high level of uncertainty.

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On Monday, the People’s Bank of China (PBOC) set the USD/CNY central rate at 6.8648. This compared with last Friday’s fix of 6.8622 and a Reuters estimate of 6.8291.

The PBOC’s main monetary policy aims are price stability, including exchange rate stability, and support for economic growth. It also works on financial reforms, such as opening and developing China’s financial markets.

Pboc Governance Structure

The PBOC is owned by the state of the People’s Republic of China, so it is not an autonomous body. The Chinese Communist Party Committee Secretary, nominated by the Chairman of the State Council, has key influence over management and direction, and Pan Gongsheng holds both that post and the governor role.

The PBOC uses several policy tools, including a seven-day reverse repo rate, the Medium-term Lending Facility, foreign exchange intervention, and the reserve requirement ratio. The Loan Prime Rate is China’s benchmark interest rate and affects loan, mortgage, and savings rates, while also influencing the renminbi’s exchange rate.

China allows private banks and has 19. The largest include WeBank and MYbank, backed by Tencent and Ant Group, and broader entry was permitted in 2014 for lenders funded by private capital.

The central bank’s action on Monday, setting the Yuan weaker than the market anticipated, is a significant signal for the coming weeks. We see this as a deliberate move to manage the currency’s value amid renewed economic pressures. This deviation from estimates is the largest we’ve seen since January of this year.

Market Implications And Outlook

This move likely reflects concerns over recent economic data, as China’s Q1 GDP growth came in at 4.8%, just missing the government’s target pace. With March export figures also showing a decline of nearly 2% year-over-year, a weaker currency becomes a tool to make Chinese goods more competitive abroad. We believe the PBOC is prioritizing export support over currency strength for now.

Given that the PBOC has multiple policy tools, we should not rule out further monetary easing. While they held the key Medium-term Lending Facility rate steady at 2.5% last week, the commentary was noticeably more dovish. This suggests a potential cut to the Reserve Requirement Ratio for banks could be used to inject liquidity if needed.

We saw a similar pattern in the third quarter of 2025, when a series of surprisingly weak fixes preceded a surprise 15-basis-point cut to the Loan Prime Rate. Traders should therefore be cautious about taking on long Yuan positions against the dollar. Hedging currency exposure for any China-related assets appears to be a prudent strategy.

A sustained weaker Yuan could put downward pressure on commodity prices, particularly for industrial metals, as it increases the import cost for China. Option traders might consider strategies that profit from increased volatility in the USD/CNH pair. We anticipate the currency will test the 6.90 level before the end of the second quarter.

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GBP/USD opened the week with a bearish gap and moved away from a two-month high near 1.3600 reached on Friday. It later recovered a few pips from a one-week low set in early Asian trade and was just below 1.3500, down over 0.15% on the day.

Risk sentiment weakened amid renewed US-Iran tensions over the Straight of Hormuz, supporting the safe-haven US Dollar and weighing on the pair. Iran closed the waterway after briefly reopening it at the weekend, following a US naval blockade of Iranian ports, with the current ceasefire due to end on April 21.

Escalation Risk And Market Reaction

Iran’s IRNA news agency reported on Sunday that Iran would not join a second round of talks with the US. US President Donald Trump said he would target every power plant and every bridge in Iran if Tehran did not accept Washington’s terms, adding to escalation risks.

Crude Oil prices rallied, raising inflation concerns and pushing US bond yields higher, which supported the dollar. The dollar’s gains were limited by lower odds of a US Federal Reserve rate rise, while markets priced in a Bank of England rate rise, supporting sterling.

Looking back at the geopolitical flare-up from this time last year, we can see the market’s classic knee-jerk reaction to conflict. The immediate safe-haven bid for the US dollar created a clear, short-term opportunity for derivative traders. The bearish gap in GBP/USD below 1.3500 was a strong signal.

In response to such events, traders should consider buying short-dated put options on GBP/USD to capitalize on the downward momentum and rising fear. We saw implied volatility on the pair spike over 25% during that week in April 2025, which also made selling call spreads an effective, risk-defined strategy. This is a playbook for profiting from sudden risk-off sentiment.

Oil Volatility And Options Positioning

The spike in crude oil, driven by the closure of the Strait of Hormuz, presented another direct trading opportunity. Buying call options on oil futures or energy sector ETFs would have been the most direct way to trade the escalation. Indeed, historical data shows Brent crude futures jumped nearly 10% in the 48 hours following that weekend’s news.

However, the underlying divergence in central bank policy between the Fed and the Bank of England was the more durable trend. While geopolitics caused short-term noise, the expectation of a BoE rate hike versus a neutral Fed provided a floor for the pound. This suggested that any deep, fear-driven sell-off in GBP/USD would likely be a buying opportunity for longer-term positions.

That monetary policy outlook ultimately proved correct over the following months, as GBP/USD recovered and eventually pushed towards 1.3900 by the third quarter of 2025. As of today, April 20, 2026, the Bank of England’s base rate sits at 5.5%, while the Fed Funds Rate is holding at 5.0%. This confirms the divergence we were anticipating last year has fully played out.

Current data continues to support this theme, as the latest UK inflation reading for March 2026 came in at a persistent 3.1%, keeping pressure on the BoE. Therefore, any new geopolitical tensions that boost the dollar should be viewed as a potential opportunity to enter longer-term bullish positions on the pound. The fundamental monetary policy story remains a more powerful driver than temporary risk events.

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