GBP/USD stayed weak for a third straight session, trading near 1.3190 in Asian hours on Monday. The pair remained in negative territory as demand for the US Dollar rose amid uncertainty in the Middle East.
US President Donald Trump set a new Tuesday deadline for Iran to reopen the Strait of Hormuz and issued threats against power plants and other civilian infrastructure. Iranian authorities said they would respond to any attacks on their infrastructure and stated the strait would stay closed until compensation for war-related damage is secured.
Dollar Demand Rises On Geopolitical Risk
The US Dollar also gained support as the conflict pushed energy prices higher, affecting expectations for Federal Reserve policy. Traders are awaiting the latest FOMC Meeting Minutes for further direction.
US data released on Friday showed the economy added 178,000 jobs in March 2026, after a revised fall of 133,000 that had earlier been reported as -92,000. This beat forecasts for a 60,000 rise, while the Unemployment Rate fell to 4.3% from 4.4%.
Sterling remained under pressure due to concerns about a possible energy shock to the UK, given its reliance on energy imports. Caution also persisted over the UK’s public finances.
Given the tension in the Middle East and the new deadline for Iran, we see continued strong demand for the US Dollar as a safe haven. This is putting direct pressure on GBP/USD, suggesting that traders should consider positions that benefit from further declines in the pair. Buying put options on GBP/USD could be a strategy to capitalize on this downside with a defined risk.
Markets Reprice Fed And Uk Risk
The stronger-than-expected US jobs report, with 178,000 jobs added last month, reinforces the idea that the Federal Reserve will delay any rate cuts. With the last CPI reading showing core inflation at 3.8%, well above the Fed’s target, derivatives traders are now pricing in a reduced probability of easing this year. Bets on a hawkish Fed can be expressed through selling short-term interest rate futures.
The surge in energy prices, with Brent crude futures recently testing the $125 mark, is a critical factor weighing on the Pound Sterling. The UK’s reliance on energy imports makes its economy particularly vulnerable, which is reflected in the latest quarterly GDP data showing a 0.1% contraction. This fundamental weakness for the UK economy supports a bearish outlook on its currency.
The heightened uncertainty means we should expect significant price swings in the coming weeks. One-month implied volatility on GBP/USD options has already surged from around 8% to over 13%, indicating that the market is bracing for turbulence. Traders might look to strategies like long straddles, which profit from large price movements in either direction, not just a continued fall.
This situation echoes the flight to safety we saw during the sovereign debt concerns in the third quarter of 2025, although the current driver is more geopolitical. Back then, the dollar also strengthened significantly against currencies with weaker fiscal positions. The market is remembering that dynamic and applying it to the UK’s fragile public finances today.
