GBP/USD rose 0.31% on Monday as the US Dollar weakened amid ongoing trade policy uncertainty.
The pair traded at 1.3507 after recovering from a daily low of 1.3475.
Trade Policy Uncertainty Drives Volatility
The move followed a US Supreme Court decision blocking tariffs introduced by Donald Trump under the IEEPA national emergency measure.
Looking back to mid-2025, we saw how sudden legal challenges to trade policy, like the Supreme Court blocking tariffs, caused the dollar to weaken and GBP/USD to spike. That event serves as a key reminder that non-economic news can create sharp, unexpected moves in currency pairs. This pattern of political uncertainty driving volatility is something we must now watch closely.
Currently, the debate in Congress over the new “Fair Trade Modernization Act” is creating similar uncertainty for the US Dollar. While not as sudden as a court ruling, the prolonged negotiations are weighing on the dollar’s strength against major currencies. We are seeing this pressure build as the U.S. Dollar Index (DXY) has already slipped 2% this month, dropping from 104 to around 102.
Derivative Strategies For A Choppy Market
This presents a complex picture because the Bank of England is simultaneously signaling potential rate cuts amid sluggish economic data, with Q4 2025 GDP growth coming in at just 0.1%. This domestic weakness in the UK could cap the pound’s potential gains, even if the dollar stays on the back foot. The conflicting pressures from both sides of the Atlantic are a recipe for choppy price action.
For derivative traders, this environment suggests focusing on volatility rather than outright direction. With the Cboe FX Volatility Index for GBP having already risen 15% to 9.2 in the last month, buying options strategies like straddles or strangles on GBP/USD could be prudent. These positions profit from a large price move in either direction, hedging against the risk of being on the wrong side of a sudden headline.
Unlike the sharp, one-off SCOTUS event of 2025, the current legislative timeline provides more defined event risks. We can use shorter-term weekly options to trade around specific committee hearings or floor votes related to the trade bill. Historically, we saw similar patterns during Brexit negotiations, where scheduled political events consistently drove short-term spikes in implied volatility for the pound.
