Fears About Omicron Send GBP/USD To 1.3200, USD Rises
Concerns about COVID-19 slowed the Bank of England’s rate hike forecasts and weakened the Pound. Increasing USD demand slowed aggressive bullish wagers.
Overview Of The Technical Aspects
GBP/USD CHART Source: Tradingview.com
Technically, the pair hasn’t altered much, and the near-term bias continues in favor of bears. Any effort at recovery would be perceived as a selling chance and might fizzle out soon.
The pair might extend its recent negative trend and retest the overnight swing low, near 1.3160. Before the pair falls below the 1.3100 barrier and accelerates its drop towards the 1.3050-45 zone, it must first breach 1.3125.
But a short-term declining trend-channel firm breakpoint around 1.3225-30 appears to be an immediate obstacle. Any additional rally will likely be limited to the weekly swing high, closing over 1.3300.
A prolonged strength over 1.3340-50 might ignite a short-covering action. Then comes resistance at 1.3370 and 1.3400. A significant break of this level would signal a near-term bottoming of the pair and invalidate the bearish view.
Overview Of The Fundamentals
The GBP/USD cross battled throughout the early European session to profit from an overnight recovery from a one-year low. The tightening of COVID-19 regulations in England proved to be a major drag on the Pound.
To combat the Omicron strain of the coronavirus, UK Prime Minister Boris Johnson instructed individuals to work from home, use masks in public, and utilize vaccination passes.
This, along with the uncertainty surrounding Brexit, pushed investors to reduce their expectations for a December rate rise by the Bank of England. Aside from that, a minor rise in US Dollar demand limited the major’s gains.
The safe-haven currency gained some support from rising US Treasury bond rates and cautious market sentiment. Aggressive Fed predictions pushed the rate on the benchmark 10-year US federal bond back above 1.50%.
Investors believe the Fed will have to act more aggressively to combat persistently rising inflation. The financial markets have been factoring in a launch in May 2022. Thus, the newest US consumer inflation numbers will be released on Friday.
However, a positive development in the coronavirus case limited Dollar gains as the market entered the big data risk.
On Wednesday, BioNTech and Pfizer announced that their COVID-19 vaccine might neutralize the Omicron version in a lab test. This relieved market concerns about the novel variant’s economic consequences, but this was eclipsed by rising geopolitical hostilities.
Ties between the US and Russia deteriorated when US President Joe Biden warned Russia of severe economic sanctions if it invaded Ukraine. Amid growing US-Sino tensions, investors’ appetite for risky assets has cooled, driving some haven flows towards the Dollar.
The pair’s price movement was range-bound due to the UK’s lack of important market-moving economic data. Traders may take cues from the US Weekly Initial Jobless Claims data later in the North American session.
Aside from that, US bond rates and wider market risk sentiment will affect USD price dynamics, potentially creating short-term trading opportunities.