The Pound edged up against the Dollar on Friday as the Dollar eased, but trading was quiet due to Good Friday. GBP/USD was near 1.3234, after hitting a four-month low of 1.3159 earlier in the week.
The US Dollar Index was close to 100 after reaching 100.64 on Tuesday, which was a 10-month high. Markets were focused on the US Nonfarm Payrolls report.
Jobs Data And Market Focus
For March, economists forecast around 60K new jobs after a fall of 92K in February. The Unemployment Rate is expected to stay at 4.4%.
A weaker jobs result could lower the Dollar and support GBP/USD, but moves may be capped while the US-Iran war continues. Shipping through the Strait of Hormuz remains largely disrupted, adding to oil-related inflation and growth risks.
This has led to fewer expectations of rate cuts from the Bank of England and the Federal Reserve. Markets are pricing in two BoE rate hikes by year-end, and expect the Fed to keep rates unchanged for longer, compared with earlier bets on at least two cuts.
BoE Governor Andrew Bailey said markets may be pricing in hikes too quickly and pointed to risks to growth, jobs, and inflation. Fed Chair Jerome Powell said policy is set to wait, and that longer-term inflation expectations remain well anchored.
Shift From Conflict Premium To Economic Divergence
Looking back to this time in April 2025, we were grappling with a very different market dynamic driven by the US-Iran conflict. Those geopolitical tensions were fueling oil-driven inflation fears, pushing the market to price in aggressive rate hikes. We saw the US Dollar Index touch 10-month highs above 100 as the pound struggled near 1.32.
Today, the landscape has fundamentally shifted, as that specific conflict premium has evaporated and the focus is now on economic divergence. With GBP/USD currently trading much lower around 1.2750, the pair reflects a stronger US economy, which grew at an annualized 3.4% in the last quarter of 2025. Derivative traders should consider strategies that hedge against further pound weakness, as the UK’s growth outlook remains more subdued.
We are also watching a much healthier US labor market than the one anticipated in March of 2025, when a meager 60K job gain was expected. The upcoming Nonfarm Payrolls report is forecast to show another solid gain of over 200,000, continuing a trend of robust hiring seen over the past year. This strength underpins the dollar and suggests positioning for volatility around the release, as a strong print could further delay expected Fed rate cuts.
The conversation around central bank policy has completely inverted from the hawkish tone of last year. With US inflation now moderating towards 3.2% and UK inflation at 3.4%, the intense pressure for rate hikes is gone. Traders are no longer using swaps to bet on hikes but are instead focused on pricing the timing of the first rate cuts from both the Bank of England and the Federal Reserve.
Given this environment, the primary play has moved from directional bets based on geopolitics to strategies based on economic data surprises. While rate cuts are expected, the exact timing is uncertain, creating opportunities in volatility. Options strategies like straddles on GBP/USD around major inflation or employment data releases could be effective for capturing the resulting price swings.
