The GBPUSD pair is struggling to continue its bullish momentum but shows signs of exhaustion ahead of the Fed policy meeting after failing to break above 1.2583. The Cable is currently trading sideways around 1.2560, as investors await the Federal Reserve's monetary policy meeting scheduled for Wednesday. The market sentiment is favouring risk-sensitive assets, and the US dollar index is eyeing a further stretch in recovery above 101.80.
Investors' risk appetite is improving, as S&P500 futures are showing minimal gains after a bullish Friday. United States equities have become more attractive after a solid quarterly performance from tech-savvy stocks. This has boosted the market sentiment, supporting risk-sensitive assets.
The US dollar index is expected to rise further above 101.80 as the Federal Reserve is likely to raise interest rates to control sticky core inflation. US consumer spending remains resilient, with higher outlays for services. The Fed's decision on Wednesday will be closely watched by investors, as it may have significant implications for the US dollar and other currencies.
GBP/USD has broken out of the rising channel chart pattern on a two-hour scale, indicating sheer strength in the Pound Sterling. The immediate support level is at April 14 high at 1.2546. The advancing 20-period Exponential Moving Average (EMA) at 1.2530 suggests that more upside momentum is expected. The Relative Strength Index (RSI) (14) has shifted into the bullish range of 60.00-80.00, signalling that the upside momentum is active for now.
The news of GBP/USD breaking out of a rising channel chart pattern below 1.2550 has important implications for forex traders. The successful test of the breakout near the April 14 high at 1.2546 could drive the asset towards a fresh 10-month high at 1.2597, which is June 8, 2022 high. A breach of the latter could expose the asset to the May 27 high at 1.2667. However, a slippage below the April 10 low at 1.2345 could expose the asset to the March 30 low at 1.2294, followed by the March 27 low at 1.2219. Forex traders will be closely monitoring the Fed's monetary policy decision and the market sentiment to determine the future direction of GBP/USD.