**GBP/USD Forecast: Pound Sterling Ignores Overbought Conditions**
*Adapted from analysis by Yohay Elam, FXStreet*
The British Pound extended its upward surge against the US Dollar on Tuesday, with the GBP/USD pair pushing well beyond previous resistance levels and seemingly ignoring technical warnings of being overbought. As investors digest the shifting landscape of global finance, the focus sharpens on upcoming UK inflation data and Federal Reserve policy cues.
**GBP/USD Technical Outlook: Bulls Keep Their Hold**
The GBP/USD proved resilient in early trading, soaring to levels not seen in over a year. Despite a series of overbought indicators flashing on widely followed momentum oscillators such as the Relative Strength Index (RSI), the Pound took advantage of persistent Dollar weakness and surged above the psychological 1.2800 barrier.
Key Technical Highlights:
– **Overbought Warning:** Daily RSI hovered around or above 70, traditionally considered an overbought threshold, but GBP/USD maintained its ascendant posture.
– **Support and Resistance:** Immediate support can be found near the 1.2720 region, while resistance levels emerge closer to the recent swing highs at 1.2850 and 1.2900.
– **Moving Averages:** The pair holds above its 50-day and 200-day moving averages, reflecting underlying bullish momentum.
Despite stretched valuations, technical evidence does not currently hint at a major reversal. Instead, GBP/USD maintains the potential for further gains, particularly if upcoming macroeconomic releases fuel the ongoing rally.
**Macro Backdrop: The Pound’s Relentless Climb**
GBP/USD’s rally is driven by a constellation of fundamental factors, with market sentiment eager to capitalize on the US Dollar’s recent period of weakness. Even with overbought trading signals, investors appear confident in the Pound’s medium-term outlook.
What’s Propelling the Pound?
– **UK Economic Data:** An improving UK economic picture, especially in the labor market, has lifted the Pound. While lingering uncertainty remains around UK growth, recent data does little to discourage Sterling bulls.
– **Bank of England Policy Divergence:** The Bank of England (BoE) is perceived as taking a relatively hawkish stance compared to other major central banks. With inflation still high, the BoE faces more pressure to maintain or tighten policy, supporting Sterling.
– **US Dollar Weakness:** The greenback has come under pressure as US inflation trends lower and Federal Reserve officials suggest a possible pause on further rate hikes. This environment encourages risk-taking and fosters demand for non-Dollar currencies.
– **Risk On Sentiment:** Broader risk appetite in financial markets has benefited higher-yielding currencies like the Pound at the Dollar’s expense.
**Critical Economic Releases Ahead**
While the short-term momentum in GBP/USD favors further gains, traders should keep a sharp eye on the macro calendar for events capable of rapidly altering sentiment.
Upcoming Catalysts:
– **UK Inflation Data:** The next Consumer Price Index (CPI) report could reinforce or undermine the Pound’s rally. Persistently high inflation would strengthen expectations of another BoE rate increase.
– **UK Retail Sales:** Consumption data will inform the post-pandemic recovery narrative, with surprises in either direction likely to move Sterling.
– **US Federal Reserve Announcements:** Any updated guidance on monetary policy, especially the timing and pace of future hikes or a possible pause, could spark volatility in the Dollar, and thus in GBP/USD.
– **Global Risk Trends:** Equity markets and broader risk sentiment can drive cross-currency movements, especially if investors rotate out of the Dollar in favor of other assets.
**Bank of England’s Balancing Act**
The BoE faces a delicate balancing act, with inflation stubbornly above target yet growing concerns over economic momentum. Markets currently anticipate the central bank will need to keep rates higher for longer compared to its major peers, though this outlook is contingent on data.
Possible BoE Policy Paths:
– **Continuation of Rate Hikes:** If
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