GBP/USD Price Analysis: Eyes 1.2700 as Fed-BoE policy divergence sets to squeeze

The GBP/USD pair has witnessed a halt after a recovery extension to near 1.2670 in the European session. The Cable is expected to resume its upside journey as the policy divergence between the Federal Reserve (Fed) and the Bank of England (BoE) is set to squeeze.

Due to the significant softening of inflation, the United States managed to skip one more interest rate hike by the Fed. However, the BoE will continue hiking interest rates as inflation in the United Kingdom is significantly higher in comparison with other developed economies.

Meanwhile, Fed chair Jerome Powell has confirmed that two more interest rate hikes are appropriate this year while borrowing rates from the BoE are expected to remain in unchartered territory for now.

GBP/USD is gathering strength for printing a fresh annual high after climbing above the round-level resistance of 1.2700. Advancing 20-period Exponential Moving Average (EMA) at 1.2518 is providing support to the Pound Sterling bulls.

The Relative Strength Index (RSI) (14) has climbed above 60.00, showing no signs of divergence and any kind of overbought situation. This indicates an activation of the bullish momentum.

For further upside, an acceptance above the round-level resistance of 1.2700 will drive the Cable asset toward 26 April 2022 high at 1.2773 and the critical resistance of 1.2800.

On the flip side, a break below May 31 low at 1.2348 would drag the asset toward May 25 low at 1.2308. Slippage below the latter would expose the asset to April 03 low at 1.2275.

GBP/USD daily chart