GBP/USD hits levels above 1.2900 for the first time since March

• GBP/USD extends the rally reaching levels above 1.2900.
• The key driver continues to be a US dollar sell-off.

The extension of the US dollar slide boosted GBP/USD further. Cable hit a new four-month high at 1.2902 and then pulled back modestly. As of writing, it is trading at 1.2885, rising for the seventh day in a row.

The decline of the US dollar continues to support the rally in GBP/USD. The greenback continues with the slide that started last week. It continues to be unable to find support, weakened by technical factors, worries about the economic recovery in the US and rising expectation about more stimulus from the Federal Reserve.

Also, traders are looking to the tensions between the US and China, that adds to speculations about further monetary stimulus. Market participants ignored data released on Monday in the US (Durable Goods Orders and Dallas Fed Manufacturing).

The GBP/USD is also being driver by technicals. The breakout above 1.2750 on Friday was a relevant technical development that added strength to the rally. Now the pair is testing the 1.2900 area. Between 1.2890 and 1.2910, there are many horizontal resistances, so a break higher would likely lead to more gains.

The rally of the pound versus the dollar takes places despite the lack of real progress on negotiations about post-Brexit relations between the UK and the EU. Despite rising versus the dollar, the pound is falling against versus the euro. Expectations about negative rates at the Bank of England are another negative factor for GBP.

Technical levels