April 15 (Reuters) - Sterling has rallied against the dollar in April, breaking through key technical levels, but the pound and the UK economy still face longer-term risks linked to the energy crisis. GBP/USD, which based at 1.3160 on March 31 — a four-month low — had climbed to 1.3590 by Tuesday, a gain of 3.3%. In doing so, the pair cleared several important resistance markers, including the 50-, 100- and 200-day moving averages, as well as a thick Ichimoku cloud.

From a technical perspective, this suggests sterling may have further room to rise and retrace more of the January-March decline from 1.3867 to 1.3160.

Recent gains have also pushed the pair beyond the key 50% Fibonacci retracement level, leaving the 61.8% and 76.4% retracement levels at 1.3597 and 1.3700 as the next upside targets.

While the technical backdrop remains supportive, fundamental risks could still derail sterling's bullish momentum. In particular, the prospect of stagflation — weaker growth combined with rising inflation — could undermine sentiment and drive investors away from the pound.

UK headline inflation is expected to rise above 3.0% year-on-year, potentially by the third quarter.

The conflict in the Middle East has driven energy prices sharply higher, prompting upward revisions to inflation forecasts.

Against a backdrop of a negative output gap and a soft labour market, the risk of the UK economy slipping into recession is rising.

For now, sterling bulls remain supported by strong upward momentum, but investors may become increasingly cautious if the fundamental outlook continues to deteriorate.
GBP/USD daily chart:


UK core inflation:


(Peter Stoneham is a Reuters market analyst. The views expressed are his own)