British pound sterling street
Pound at a new 5-month high ahead of Carney's press conference and inflation outlook Reuters

UK's pound has rallied to a new five-month high on Tuesday as higher than expected industrial output numbers added to the positive sentiment after the 7 May election.

The election could lead to the formation of a stable government at a time when many had been fearful of a hung parliament.

UK's manufacturing output expanded 1.1% from a year earlier in March, lower than previous month's 1.2% but beating market estimates of 1.0%. Also, the February rate was an upward revision from 1.1% prior.

Industrial output growth rose to 0.7% from 0.1% while the market had been expecting a 0.2% growth.

Month-on-month rates of both manufacturing and industrial output growth also surprised on the higher side, boosting economic fundamentals of UK as the country is bracing up for an in/out EU referendum - a promise of Conservatives who have been just voted back to power.

GBP/USD soared to 1.5713, its highest since 17 December, from the previous close of 1.5585. Since the election results were out, Sterling has rallied about 1.7% against the dollar.

So far in May, pound has strengthened 2.4% adding to the 3.6% gain in April that pulled off the pair from a 5-year low of 1.4565.

The pair has broken above the 38.2% Fibonacci retracement of the July 2014 to April this year selloff and is now targeting the 50% level of 1.5875 in the big picture.

That level is also supported by the 50-period and 14-period moving averages on the monthly chart, making it a crucial level to watch on the higher side.

A break of that will open doors to 1.6200 near the 61.8% line ahead of 1.6535 and then the last year peak of 1.7192.

On the downside, the key level to watch out for is 1.5200 ahead of a retest of lows during March-April period but 1.5400 could offer mild support before that.

This being a data-heavy week for pound with April NIESR GDP estimate are April jobless rate due in the coming days, bigger moves in the currency may be anticipated in the market.

The focus, however, will be on the quarterly inflation report on Wednesday at 9:30 GMT and the press conference by Bank of England governor Mark Carney at the time of the release.

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