GBP/USD Forecast: No signs of a slowdown as risk flows dominate

• GBP/USD advanced beyond 1.3000 for the first time since April 2022.
• USD stays on the back foot as market mood remains upbeat on Thursday.
• Near-term technical picture shows that the pair remains overbought.

GBP/USD extended its rally and reached its highest level since April 2022 near 1.3050 after having closed the fifth straight day in positive territory on Wednesday. Although the pair remains technically overbought, the risk-positive market environment could delay a downward correction.

The US Dollar Index (DXY), which tracks the US Dollar's (USD) performance against a basket of six major currencies, lost over 1% on Wednesday and is down nearly 2% so far this week. After the data published by the US Bureau of Labor Statistics revealed that inflation in the US, as measured by the change in the Consumer Price Index (CPI), declined sharply to 3% o a yearly basis in June from 4% in May, the USD came under heavy selling pressure. Additionally, the monthly Core CPI, which excludes volatile food and energy prices, rose only 0.2% in June, the lower one-month increase since August 2021.

Early Thursday, investors show no interest in the USD, with the DXY trading at its lowest level in 15 months below 100.50. 

In the American session, the Producer Price Index (PPI) data for June will be featured in the economic docket. On a monthly basis, the PPI is expected to increase 0.2%, after having declined 0.3% in May. An upside surprise in that data could help the DXY stage a rebound. Unless there is a negative shift in risk mood, however, a pullback in GBP/USD could remain short-lived.

In the European session, US stock index futures are up between 0.3% and 0.7%, suggesting that Wall Street's main indexes are likely to build on Wednesday's strong gains after the opening bell.

Meanwhile, the data from the UK showed that the Real Gross Domestic Product (GDP) declined 0.1% on a monthly basis in May. This print came in better than the market expectation for a contraction of 0.3%.

GBP/USD Technical Analysis

The Relative Strength Index (RSI) indicator holds above 70 and GBP/USD trades more than 100 pips beyond the upper-limit of the long-term ascending regression channel coming from March, highlighting overbought conditions.

In case GBP/USD stages a correction, 1.3000 (psychological level, static level) aligns as initial support before 1.2960 (former resistance, static level) and 1.2900 (20-period Simple Moving Average (SMA), upper-limit of the ascending channel). 

On the upside, 1.3100 (psychological level, static level) could be seen as the first resistance ahead of 1.3150 (static level from April 2022) and 1.3180 (static level from April 2022).