GBP/USD hovers around 1.3400 as Brexit, Omicron fears battle thin liquidity

• GBP/USD seesaws around monthly high amid holiday-thinned trading session.
• UK covid infections refresh record top, PM Johnson may unveil new activity restrictions for London.
• Chancellor Sunak braces for job cuts over the next three years, UK voters believe Brexit has gone badly, worse.
• Off in the UK, a light calendar could restrict market moves.

GBP/USD takes rounds to 1.3400 during an inactive Asian session on Monday. The cable pair snapped a three-day uptrend near the monthly high the previous day as fears over South Africa-linked covid variant and Brexit escalate. However, an offer in the UK and holiday mood elsewhere in the west restricts the market’s moves of late.

With a sustained run-up beyond 100,000 daily covid infections in the UK, recently around 120,000 cases, the British policymakers are pushed to consider experts’ advice for tougher activity restrictions. “Prime Minister Boris Johnson and his Cabinet are expected to review the latest data and advice from experts on Monday to decide if further restrictions need to be brought in for England as well,” said LiveMint. It’s worth noting that Wales, Scotland and Northern Ireland have fresh virus-led lockdown measures starting from Sunday.

On a different page, a survey from the research and strategic insight agency Opinuim states, “Six out of 10 voters in the UK now believe that the country's split from the European Union has either gone bad or worse than they expected.” The findings also mentioned, “42% of people who voted to leave the EU in 2016 now have a negative view of how Brexit has materialized.”

It’s worth noting that the UK’s newly appointed Brexit Minister Liz Truss held her first phone talks with European Commission vice-president Maros Sefcovic but couldn’t provide any major positives.

Elsewhere, UK Chancellor Rishi Sunak is said to prepare for job cuts on the UK civil service across Whitehall over the next three years, per the Financial Times (FT). “Sunak is working with the Cabinet Office to oversee the cuts as part of efforts to secure savings worth 5% of Whitehall departments’ day-to-day spending budgets by 2024-25,” the news adds.

On a broader front, the Omicron woes are firming and so do the Russia-Ukraine tussles, which in turn weigh on the GBP/USD prices. However, optimism surrounding President Joe Biden’s Build Back Better (BBB) stimulus plan and an 8.5% jump in US retail sales, per Mastercard data, challenge the pair bears.

Amid these plays, GBP/USD prices grind higher surrounding the monthly peak but the bears remain hopeful considering the negatives.

Given the off in the UK and holiday mood across the board, GBP/USD may remain sidelined. However, US Dallas Fed Manufacturing Index for December, expected 13.2 versus 11.8 prior, can offer intermediate moves, in addition to the Brexit and covid headlines.

Technical analysis

Failures to cross 50-day EMA and 38.2% Fibonacci retracement of October-December declines, around 1.3415-20, keep GBP/USD sellers hopeful to revisit the sub-1.3300 area. However, tops marked during November 30 and mid-December around 1.3375-70 offer immediate support to the cable pair.