**GBP/USD Forecast: Pound Sterling Ignores Overbought Conditions**
_Originally authored by Eren Sengezer, FXStreet_
The GBP/USD currency pair has continued its persistent upward drive, steadily climbing while many analysts are carefully watching for signs of technical exhaustion. Despite a medium-term overbought status, the British Pound has largely shrugged off these concerns, extending its rally against the US Dollar and reaching multi-week highs. This article delves deeper into the underlying factors propping up the pair, the technical landscape that traders are observing, and the data or events likely to define its near-term trajectory.
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### Resilient Rally in GBP/USD
The British Pound has outperformed a basket of currencies in recent weeks, receiving strong bids amid both UK-specific influences and broader global dynamics. Against the US Dollar, the cable climbed above key resistance thresholds, suggestive of robust underlying demand.
#### What is Driving the Pound’s Strength?
Several factors have converged to support the GBP/USD rate:
– **Improved UK Data**: Recent economic releases point to resilience in the British economy, with preliminary growth readings, retail sales, and services sector activity all surprising to the upside.
– **Diminished US Dollar Demand**: Globally, risk appetite has improved, prompting investors to rotate out of the safe-haven greenback. Dovish undertones in recent US Federal Reserve communications have weighed on the dollar further.
– **Expectations for BoE Policy**: Despite lingering uncertainties, the market anticipates that the Bank of England will maintain a relatively hawkish stance longer than the Federal Reserve due to persistent domestic inflation pressures.
– **Technical Breakouts**: As the rate pushed through resistance levels, momentum-following traders have added to long positions, reinforcing the rally.
As a result, the GBP/USD has not only ignored typical overbought indicators but also continued forging higher.
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### Technical Analysis: Overbought Yet Undeterred
While macroeconomic and policy expectations matter, technical analysis offers vital context for the moves seen in GBP/USD. The current landscape is noteworthy for a combination of overbought readings and bullish price action.
#### Key Technical Observations
– **Relative Strength Index (RSI) Surges**: On the daily chart, the RSI remains elevated above the 70 threshold, historically signaling overbought conditions. However, the absence of reversal patterns suggests that the rally can persist before any significant pullback.
– **Breakout Above Resistance**: The pair has firmly crossed intraday and closing resistance zones, specifically the 1.2800 and 1.2850 ranges, turning previous supply into fresh support.
– **Moving Average Alignment**: Short and medium-term moving averages (like the 20-day and 50-day Simple Moving Averages) slope higher, validating bullish momentum.
– **Trend Continuation Patterns**: Price action maintains higher lows and higher highs, confirming the ongoing trend.
#### Implications of Overbought Signals
Normally, such a strong RSI would hint at a forthcoming corrective phase, especially after a multi-week climb. However, several points argue against an imminent reversal:
– Traders may view the persistent strength as evidence of underlying buyers on every dip.
– Positive momentum on broader timeframes makes shallow pullbacks more likely than deep corrections.
– The absence of major bearish candlestick patterns or divergence signals on momentum indicators suggests caution before betting against the trend.
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### Fundamental Backdrop: Why the Pound is in Demand
Beyond pure sentiment, the robust performance of GBP/USD has a foundation in recent macroeconomic developments and expectations about central bank policy.
#### UK Economic Highlights
– **Growth Data**: Recent GDP figures have surprised to the upside, countering prevailing fears of stagnation.
– **Labor Market**: Wage growth remains strong, suggesting inflationary pressure persists despite easing headline inflation readings.
– **Inflation Dynamics**: Consumer Price Index (CPI) inflation, although cooling, remains above the Bank of England
Read more on GBP/USD trading.