The Pound edged up against the US Dollar on Friday as the Dollar softened. Trading was quiet due to thin liquidity over the Good Friday holiday, with attention on the US Nonfarm Payrolls (NFP) report.<\/p>\n
GBP\/USD traded near 1.3234 at the time of writing, after a four-month low of 1.3159 earlier in the week. The US Dollar Index hovered near 100 after reaching 100.64 on Tuesday, a 10-month high.<\/p>\n
Economists forecast that March NFP will show around 60K job gains after a 92K fall in February. The Unemployment Rate is expected to remain at 4.4%.<\/p>\n
A weaker NFP result could pressure the Dollar and support GBP\/USD. The ongoing US-Iran war has kept the Dollar supported.<\/p>\n
There is no clear near-term end to the conflict, and shipping via the Strait of Hormuz remains largely disrupted. Oil-related inflation and growth risks are rising, lowering expectations for rate cuts from the Bank of England and the Federal Reserve.<\/p>\n
Markets are pricing in two BoE rate rises by year-end and expect the Fed to keep rates unchanged for longer. Recent guidance from both central banks indicates no immediate move to raise rates.<\/p>\n
We should recall this time last year, in April 2025, when markets were aggressively pricing in Bank of England rate hikes due to the US-Iran war’s effect on oil prices. At that time, both Governor Bailey and Chair Powell were urging caution, suggesting policy was in a good place to wait and see. This created a significant disconnect between market pricing and central bank guidance.<\/p>\n
Looking back at how 2025 unfolded, we saw that the central bankers were true to their word, holding rates steady for much longer than the futures market anticipated. Despite UK inflation proving sticky and remaining near 4.0% into early 2026, the Bank of England prioritized growth concerns and avoided the hikes priced in by the market. This means strategies that involved selling sterling interest rate volatility would have been highly profitable through the second half of last year.<\/p>\n
Given this history, we should now consider the current environment where GBP\/USD trades lower around 1.2750. Implied volatility in the pound has fallen as the market has grown accustomed to central bank inaction. For instance, the Cboe Sterling Volatility Index is now sitting near multi-month lows, indicating a degree of complacency among traders.<\/p>\n
This complacency may present an opportunity to position for the opposite scenario. With underlying inflation still well above the 2% target in both the UK and US, the period of central bank patience cannot last forever. We should therefore look at using options to buy volatility cheaply, anticipating an eventual break from the current holding pattern.<\/p>\n
Specifically, purchasing long-dated straddles or strangles on GBP\/USD could be a cost-effective way to position for a significant move in the coming months. This strategy would profit whether the Bank of England is forced into a surprise hike to finally crush inflation or a sudden cut to stave off a deepening recession. It allows us to benefit from the eventual end of this extended pause, a move the market currently seems to be underpricing.<\/p>\n
Create your live VT Markets account<\/a>\u00a0and\u00a0start trading<\/a>\u00a0now. <\/b><\/p>\n","protected":false},"excerpt":{"rendered":" Pound edged higher as Dollar softened in quiet holiday trade; markets awaited NFP amid US-Iran war.<\/p>\n","protected":false},"author":103,"featured_media":17030,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[59],"tags":[],"class_list":["post-46436","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-live-updates"],"acf":{"acf_article_selection_author":null},"aioseo_notices":[],"_links":{"self":[{"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/posts\/46436","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/users\/103"}],"replies":[{"embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/comments?post=46436"}],"version-history":[{"count":0,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/posts\/46436\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/media\/17030"}],"wp:attachment":[{"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/media?parent=46436"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/categories?post=46436"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/tags?post=46436"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}