GBP/USD dips under 1.3300 as sterling traders worry about impact of UK Omicron outbreak

• GBP/USD slipped under 1.3300 in recent trade and is eyeing year-to-date lows.
• The pair has been weighed by concerns about an Omicron outbreak in the UK.

Sterling has been under pressure during US trading hours, pulling back from earlier session highs above 1.3350 to fresh session lows under 1.3300. That leaves the pair only a few pips above annual lows printed last Friday at 1.3278. Recent weakness could be a reflection of fears that the Omicron Covid-19 variant, multiple infections of which have now been picked up across the UK, poses downside risks to the UK’s economic recovery this winter.

The government advised citizens over the weekend that masks would be required in indoor spaces once more and that social distancing was encouraged. Meanwhile, the UK’s health minister seemed to hint that any potential lockdown restrictions, which have not yet been taken off of the table, would be linked to hospitalisation rates. An FT article, which claimed that analysts think the impact of Omicron on the UK economy will be minimal, has been broadly ignored.

More broadly, the fact that the US dollar has been picking up amid a rise in long-term US government bond yields (long-term UK yields have seen a much more modest rise on Monday) is weighing on the pair. The tone of US President Joe Biden in a press conference on Omicron was relatively upbeat/glass half full. The variant is concerning, but not a cause for panic, the vaccine is still expected to protect, as are masks and lockdowns are off the table, for now, was the general message and it seems to have boosted US equities, which could be aiding the dollar also.