**GBP/USD Breaks Higher as 1.35 Turns into Support and Momentum Stays with Buyers**
*Based on the analysis by Fiona Cincotta, Senior Financial Markets Analyst at City Index, as published on Investing.com.*
The British Pound (GBP) has exhibited remarkable strength against the US Dollar (USD) in recent sessions, breaking decisively above the psychological and technical resistance at the 1.3500 handle. The breakout has transformed 1.3500 from a ceiling into a robust support level, underlining the strong bullish momentum underpinning the GBP/USD currency pair.
The move is grounded in a mix of technical and fundamental factors. The UK’s improving economic outlook, propelled by successful vaccination programs and easing of pandemic-related restrictions, has further fueled the sterling’s strength. Simultaneously, the US Dollar has lost its near-term safe-haven bid as market participants, encouraged by dovish commentary from the Federal Reserve, have resumed risk-on sentiment.
This article delves deeper into the catalysts behind the GBP/USD’s bullish breakout, explores key technical levels, highlights potential risks and opportunities, and assesses the broader macro backdrop influencing the pair’s trajectory.
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### Fundamental Drivers Behind GBP/USD Strength
#### UK Economic Reopening
– The UK’s pace of vaccination has outstripped most developed nations, leading to rapid declines in COVID-19 cases and hospitalizations.
– Lockdowns and social restrictions have begun easing, with expectations for a near-complete reopening of the economy in the coming months.
– High-frequency data suggests robust pent-up demand and the potential for a strong surge in consumer activity as restrictions are lifted.
#### Improved Economic Forecasts
– The Bank of England (BoE) and major institutions have revised UK growth forecasts higher, citing strong consumer spending and fiscal stimulus.
– Forward-looking indicators, such as PMI surveys, have pointed to expanding business activity in both services and manufacturing.
– The labor market has demonstrated resilience, with unemployment peaking at lower-than-expected levels and job vacancies steadily increasing.
#### Declining Brexit Uncertainty
– The arduous multi-year Brexit saga is now firmly in the rearview mirror for markets, leading to diminished headline risk and renewed interest in UK assets.
– Although frictions over Northern Ireland remain, the broad avoidance of immediate trade shocks and supply chain disruption has reassured traders.
#### Relative Positioning Against the Dollar
– Commodity prices, buoyed by global recovery prospects, have supported growth-sensitive currencies like the pound versus the USD.
– The Federal Reserve’s commitment to ultra-accommodative policy and patience on inflation have cooled expectations of any early tightening.
– Fiscal stimulus packages in the US, while positive for growth, have contributed to a weaker dollar through higher deficits and increased risk appetite.
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### Technical Analysis: GBP/USD Chart Levels
#### Bullish Breakout Above 1.3500
– After consolidating below the 1.3500 resistance for several weeks, GBP/USD gathered enough momentum to break higher.
– Closing daily candles above 1.3500 has repositioned this level as a new support, rather than resistance.
– The breakout has attracted momentum traders and short-covering, further accelerating gains.
#### Momentum and Trend Structure
– The currency pair remains well above its 20-day and 50-day moving averages, a reflection of the ongoing bullish trend.
– RSI readings in the higher 60s and 70s suggest overbought conditions, but not excessively so as to immediately derail the rally.
– The ascending channel which began forming earlier this year remains intact, guiding price action towards higher targets.
#### Immediate Support and Resistance Levels
Support:
– **1.3500:** The old resistance now serves as immediate support. As long as the pair holds above this threshold, the bullish structure remains unchallenged.
– **1.3470:** Minor support, marked by intraday lows and a cluster of previous highs.
– **1.3400:** Lower support, aligning with the 20-day moving average
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