GBP/USD rebounds to 1.3250, with sterling resiliant to UK Omicron concerns for now

• GBP/USD rebounded above 1.3250 on Monday from earlier session lows in the 1.3220s.
• Sterling has been holding up well despite an increasingly alarming Omicron backdrop in the UK.

GBP is holding up comparatively well versus a broadly stronger US dollar versus its G10 peers on Monday, with GBPUSD currently trading only very slightly in the red on the session close to the 1.3250 level. GBP is the second best performing G10 currency on the day after the US dollar. The rebound from earlier session lows in the 1.3220s comes despite the UK PM and health authorities sounding the alarm about Omicron over the weekend.

Technical buying could be lending GBP/USD some support. The pair broke to the north of a long-term downtrend at the end of last week and appeared to retest this downtrend earlier on Monday’s session. Short-term technical speculators may have seen this as a good entry point to ride the pair back towards last week’s highs in the 1.3270s.

UK Update

Over the weekend, UK PM urged British citizens to get their booster jabs amid an incoming “tidal wave” of Omicron Covid-19 infections, which the health secretary Sajid Javid said now account for about 40% of infections in London. The UK Health Security Agency also advised that the UK have its Covid-19 alert level lifted to four from its current three and the PM on Monday ruled out the prospect of further restrictions being imposed ahead of Christmas.

Against the deteriorating backdrop in the UK, it seems highly unlikely that the BoE will press ahead with a rate hike. Policymakers have in recent weeks expressed concerns about the impact of Omicron on the UK’s economic outlook and these concerns will have only risen. Against that backdrop, Tuesday’s UK labour market report and Wednesday's UK Consumer Price Inflation report will be seen as holding less sway over policy-making decisions. If it wasn’t for Omicron, strategists would likely argue that strong labour market and inflation data would have been enough to swing in favour of a rate hike.