The British pound just hit its highest point in more than three years. The underlying drivers of this increase are a dollar that is continuing to weaken and strong surprise inflation data out of the U.K. Wednesday saw the pound drift lower to retest the 1.3400 area. At one point earlier, it hit a peak of 1.3468, passing another psychological threshold as the currency continues to make headway.
In April, UK consumer prices jumped, posting their largest annual gain since 2022. This increase, which resulted in the highest level in 15 months, has created a favorable investment opportunity for the pound. Recent hot inflation data have significantly raised the odds. As such, the Bank of England will be reluctant to signal early easing in monetary policy or a smaller number of rate cuts given the darkening economic outlook.
After a close analysis of the pound recently, it appears we have an extremely strong bullish setup, which is being backed by strengthening positive momentum. A heaping dense opaque cumulus cap caps the currency’s climbs, suggesting there’s lots of momentum to its uptrend. Beyond that, the daily Tenkan/Kijun-sen indicators are set to form a bull-cross, a second signal that big moves forward are on the way for the pound.
Despite this bullish outlook, analysts are calling for the pound to enter a period of consolidation, worn down by overbought conditions. Resistance levels are still strong, with major obstacles seen at 1.3468, 1.3500, 1.3557 and 1.3600. The EURCAD remains under pressure after failing at the 1.3434/44 area. This strong resistance will likely kill any move higher in the short run.
Key support levels for the pound are now set at 1.3400, 1.3360, 1.3305 and 1.3250. These levels will be critical for traders as they navigate potential fluctuations in the currency’s value amid ongoing economic developments.