GBP/USD clings to six-week high around 1.3500 as weaker USD joins Brexit, Omicron woes

• GBP/USD grinds higher at the highest levels since November 19 after the biggest daily jump in a week.
• Despite record covid infections, UK PM Johnson pushed towards further activity easing.
• New Brexit laws, UK Diplomat Truss’ readiness keep Article 16 threat on table challenge pair bulls.
• US Treasury yields weighed on the greenback, second-tier US data eyed for fresh impulse.

GBP/USD remains on the front foot around 1.3485-90 during Thursday’s Asian session, after refreshing the multi-day top to 1.3599 the previous day.

Alike other major currency pairs, the cable also cheered broad US dollar weakness while ignoring threats from the South African covid variant, namely Omicron, as well as Brexit of late.

On Wednesday, the US Dollar Index (DXY) dropped the most in a week to poke the monthly low before closing around 95.88. The greenback seems to have taken clues from a rally in US Treasury yields and downbeat data to print losses.

That said, US 10-year Treasury yields jumped the most in three weeks to refresh monthly high around 1.557%, up 7.6 basis points (bps) by the end of Wednesday’s North American session. The reason could be linked to a disappointment from the weak seven-year bond auction. “The seven-year notes sold at a high yield of 1.48%, around two basis points higher than where they had traded before the auction,” said Reuters.

At home, the UK refreshed all-time high covid infections with 183,037 daily cases for Wednesday. While conveying the covid numbers, Reuters also said, “Despite the growing number of cases, Prime Minister Boris Johnson has said he will not bring in new restrictions this year in England to limit the spread of Omicron, which now accounts for 90% of all community infections, according to health officials.” It’s worth noting that Sky News reports fresh pressure on UK PM Johnson to ease the self-isolation period for positive cases. “A number of scientists have said that the UK should follow in the footsteps of the US and reduce the COVID self-isolation period to five days, in an effort to protect the NHS,” said the news.

Talking about Brexit, European Commission Vice President Maroš Šefčovič has already warned of a no-deal Brexit if the UK reiterates the threat of activating Article 16. However, British Negotiator Liz Truss is in no mood to turn down the pressure, which in turn suggests another round of drama in the next year’s Brexit talks. Also negative were the fears of a food supply shortage due to the fresh Brexit laws that will be live from early 2022.

It’s worth noting that the US Pending Home Sales for November dropped below the forecast of +0.5% to -2.2% MoM whereas Good Trade Balance hit a record deficit of $-97.8B versus $-83.2B prior.

That said, the GBP/USD traders may keep the latest upside momentum amid a lack of major data/events and the year-end liquidity crunch. However, the US Weekly Jobless Claims and Chicago Purchasing Managers’ Index for December, expected 205K and 62 versus 205K and 61.8 respectively, will be important to watch.

Technical analysis

A clear upside break of September’s low and 50-DMA, respectively around 1.3410 and 1.3425, keeps GBP/USD buyers hopeful to poke the 100-DMA hurdle near 1.3570.