GBP\/USD dipped to about 1.3380, then recovered to around 1.3510, up 0.35% on the day. It has risen more than 350 pips from near 1.3160 in early April, and has retraced roughly half of the drop from about 1.3870.<\/p>\n
A US blockade of the Strait of Hormuz after failed peace talks in Pakistan weighed on risk appetite early on Monday. Later, the US Dollar eased as markets anticipated a possible resolution, helping GBP\/USD to regain 1.3500.<\/p>\n
Tuesday brings the March US Producer Price Index (PPI), expected at 1.2% month-on-month versus 0.7% in February. The year-on-year PPI is forecast at 4.6% versus 3.4%, alongside five Federal Reserve speeches from Goolsbee, Barr, Barkin, Collins, and Paulson.<\/p>\n
UK CPI is expected to rise to between 3% and 3.5% over coming quarters due to higher fuel and utility costs. This follows a prior move towards the 2% target before the conflict.<\/p>\n
GBP\/USD trades near 1.3513, above the 50-day EMA at 1.3395 and the 200-day EMA at 1.3367. Stochastic RSI is near 71, with support levels around 1.3395 and 1.3367.<\/p>\n
We remember watching the pound recover to 1.3500 in April 2025, even as the US blockade of the Strait of Hormuz began. That market optimism about a quick resolution proved temporary, as the stagflationary risks discussed at the time took hold and weighed on the UK economy throughout the past year. Today, with GBP\/USD hovering near 1.2850, our focus has shifted from geopolitical hope to the hard reality of stubborn inflation.<\/p>\n
The inflation shock from the 2025 conflict has left a long tail that we are still managing. The latest March Consumer Price Index data showed US inflation remains sticky at 3.1%, while the UK\u2019s figure came in at 3.2%, both stubbornly above the 2% target. Consequently, both the Federal Reserve and the Bank of England have signaled that the rate cuts we had anticipated for this quarter are likely delayed.<\/p>\n
Tensions in the Strait of Hormuz have eased from the direct blockade of 2025, but they have not disappeared, with sporadic shipping disruptions still a concern. This persistent risk keeps a floor under energy prices, with Brent crude recently trading back above $92 a barrel. This complicates the path back to lower inflation and keeps the risk of another price spike in our minds.<\/p>\n
Given this backdrop of sticky inflation and central bank hesitation, we should position for continued range-bound trading marked by sharp bursts of volatility. Using options to buy straddles or strangles ahead of key inflation reports could be a good way to play the expected price swings. This allows us to profit from a significant move in either direction without having to guess the outcome of finely balanced policy decisions.<\/p>\n
For those of us who believe the UK\u2019s economic challenges will ultimately limit the pound’s upside near the 1.3000 level, selling out-of-the-money call options on GBP\/USD offers a way to generate income. On the other hand, with the market highly sensitive to any shift from the Fed, buying short-dated puts can serve as a cost-effective hedge. This protects against any hawkish surprises that could send the dollar sharply higher and push the pound back toward its yearly lows.<\/p>\n","protected":false},"excerpt":{"rendered":"
GBP\/USD rebounds above 1.3500 as dollar eases; focus turns to US PPI, Fed speeches, UK inflation.<\/p>\n","protected":false},"author":87,"featured_media":0,"comment_status":"","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[33],"tags":[],"class_list":["post-44343","post","type-post","status-publish","format-standard","hentry","category-live-updates"],"acf":{"acf_article_selection_author":null},"aioseo_notices":[],"aioseo_head":"\n\t\t\n\t\n\t\n\t\n\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t