Pound Sterling vs US Dollar rises to mid 1.26s as US Dollar weakens and BoE meeting appears on radar.

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• Pound Sterling vs US Dollar rises to mid 1.26s as US Dollar weakens and BoE meeting appears on radar.
• The Pound benefits from monetary policy divergence with the US Dollar as elevated inflation suggests more hikes to come in the UK.
• Trend remains bullish suggesting higher highs to come as GBP/USD continues rising.

The Pound Sterling (GBP), the oldest currency in the world, rises versus the US Dollar (USD) on Monday, as the island nation has crowned a new head for its notes and coins in King Charles III.

The Pound Sterling is benefitting from a perceived monetary policy divergence with the US Dollar. Interest rates in the US may have peaked unlike in the UK where persistently high inflation coupled with robust data continues to suggest the Bank of England (BoE) will need to do more to get inflation under control. Since global investors are always looking to park their money where it can earn the highest return, this favors GBP.

From a technical perspective, GBP/USD continues to make new highs in a broadly bullish long-term uptrend. Given the old adage that “the trend is your friend” this advantages long over short holders.

GBP/USD continues making new highs, most to 1.2668, extending the established uptrend that began at the September 2022 lows. The overall trend remains bullish, favoring Pound Sterling longs over shorts.

GBP/USD: Daily Chart

The recent decisive break above the 1.2593 April 28 highs opens the door to further gains to come. The GBP/USD completed three consecutive bullish green days in a row when it broke through the April resistance highs, indicating a higher chance price will hold above the level and continue rising higher.

To the upside, key resistance levels lie close to the current market level at the May 2022 highs at 1.2665, then at the 100-week Simple Moving Average (SMA) situated at 1.2713, and finally at the 61.8% Fibonacci retracement of the 2021-22 bear market, at 1.2758. All provide potential upside targets for the pair. Each level will need to be decisively breached to open the door to further upside.

A decisive break is characterized by either a strong green daily bar that breaks above the key resistance level in question, and closes near the day’s highs. Or alternatively, three consecutive green bars that break above the resistance level. Such insignia provide confirmation that the break is not a ‘false break’ or bull trap.

The Relative Strength Index (RSI) remains below the overbought level at 70 but is creeping higher in line with price, reaching the upper 60s at the time of writing. Monday’s new higher highs in price were accompanied by similar higher highs in RSI indicating there is no bearish divergence. This is a mildly supportive sign for GBP/USD and may be indicative of further gains to come.

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