GBP/USD rallies to the highest level since May 2018, around mid-1.3500s

The GBP/USD pair continued scaling higher through the mid-European session and climbed to the highest level since May 2018, around mid-1.3500s in the last hour.

A combination of supporting factors assisted the pair to prolong this week's bullish momentum and gain some follow-through traction for the third consecutive session on Wednesday. The British pound remained well supported by optimism over the possibility of a post-Brexit trade deal, which, along with sustained US dollar selling bias remained supportive.

An EU official was reported saying on Wednesday that fisheries remained the main problem in trade talks and that the EU has rejected Britain's offer of phased access to UK waters for the next three years. Separately, the European Commission President Ursula von der Leyen said that sometimes it feels like that they may not reach a solution on fisheries.

von der Leyen further added that she saw clear progress in the trade talks with the UK and there is now a path to a Brexit agreement. This implied that negotiators have moved forward on other two sticking points of the level playing field and also governance. This, in turn, was seen as one of the key factors that provided a goodish lift to the sterling.

On the other hand, the US dollar dropped to fresh two-and-half-year lows amid firming expectations for additional US fiscal stimulus measures. Apart from this, the prevalent upbeat market mood – amid positive news on COVID-19 vaccine rollouts – and a weaker tone surrounding the US Treasury bond yields further undermined the greenback's safe-haven demand.

Meanwhile, the intraday positive move pushed the GBP/USD pair back above the key 1.3500 psychological mark. This could also be cited as another factor that prompted some technical buying and contributed to the ongoing bullish momentum. With technical indicators still far from being in the overbought territory, the pair seems poised to appreciate further.

On the economic data front, the release of the US monthly Retail Sales data will be looked upon for some respite for the USD bulls. The key focus, however, will remain on the latest FOMC monetary policy update and developments surrounding the Brexit saga, which will play a dominant role in determining the next leg of a directional move for the GBP/USD pair.

Technical levels to watch