Sterling rose against the dollar on Monday as a week full of central bank interest rate decisions kicked off.

We will hear from the ECB and the Bank of Japan, but of course the Fed call will be the most important. This expires on Wednesday and the market is betting that we will pause rate hikes for the first time in 11 meetings of the Federal Open Market Committee.

Even if these bets prove correct, we are still unlikely to see an end to high interest rates in the United States, as inflation remains well above target. Still, the Fed has done a better job than other central banks of calming prices, and may well see a pause as entirely justified. It has certainly been much more successful than the Bank of England so far, and the argument that UK borrowing costs still need to rise significantly continues to support the pound.

Consumer price inflation in the UK slowed markedly in April, according to official data released late last month. However, it is close to 9 percent, against a target of 2 percent, and food price inflation remains rampant, at 45-year highs.

The pound rose to its highest point against the dollar since May 11 on Monday morning, perhaps in response to an article in the Scotsman by Bank of England rate-setter Jonathan Haskell, in which he wrote that further rate hikes cannot be ruled out and that it is important to try to stop inflation from integrating into the economy.

The pound has some event risk away from central banks and inflation this week, with official data due for growth and employment data. The economy has managed to defy some of the more pessimistic forecasts made at the start of the year, with growth and job creation more resilient than feared. However, if they stay that way, it may become clearer that borrowing costs will have to rise again.

GBP/USD has now managed to overcome a decline below its uptrend line since September 2022, and the closing below this trend line on May 24 clearly signals a further extension of the decline. In fact, the pair has since risen sharply, with bulls focusing on the psychologically important area of 1.2600 prior to the May high of 1.2679.

The expected fulfillment of a pause in US interest rate hikes could lead to a strong rally in the pair and possibly a return to these levels. The trend line is now providing support very close to the current market at 1.2534. Below that, support stands at 1.2477. This is the first Fibonacci retracement from the March low to the May high.

Since May 26, there has been a clear uptrend pattern of lows moving higher on the daily chart with little breakout, which indicates the emerging trend line support at 1.2466.

According to IG's own data, views on the pair are mixed. This suggests that investors think the pound may not have much upside in the near term, and that last month's highs may not face near-term challenges. With this week's big event risk so close, the reluctance to make aggressive bets may be understandable.