GBP/USD: Cautious optimism over Brexit, Omicron defends 1.3500 ahead of US NFP

• GBP/USD holds onto corrective pullback from 1.3490, seesaws near two-month high.
• UK’s Jacob Rees-Mogg defends government’s Brexit approach, British Competition Chief steps back.
• British covid numbers ease but scientists warn covid not getting milder.
• Yields challenge bulls with eyes on US NFP for December.

GBP/USD stays above 1.3500, taking rounds to 1.3530 during Friday’s Asia session. The cable pair snapped a two-day uptrend the previous day amid broad US dollar strength and soft UK Services PMI but covid figures and hopes of the easy path on Brexit seem to favor buyers amid the market’s inaction ahead of the key US jobs data for December.

The UK reported around 180,000 daily covid cases and 231 virus-linked deaths the previous day. The numbers have been easing since the early weekdays when above 200,000 figures were seen. While the government authorities praise strong vaccinations and activity restrictions as reasons, a leading Indian-origin scientist from the University of Cambridge warned on Thursday that it is an "evolutionary mistake". Ravindra Gupta, Professor of Clinical Microbiology at the Cambridge Institute for Therapeutic Immunology and Infectious Diseases (CITIID) also hints that the reduction in the numbers does not indicate that the virus which causes COVID-19 is becoming less virulent.

Elsewhere, news that the UK’s Head of Competition and Markets Authority (CMA), Andrea Coscelli, will step down raised hopes of softer Brexit negotiations ahead. “According to government insiders, ministers regarded Mr. Coscelli as an impediment to post-Brexit economic reforms and saw him as a hurdle to breaking with EU competition policy,” said The Telegraph.

On the other hand, US Treasury yields rallied and helped the US dollar to remain firmer as the recent Fedspeak backed faster rate hikes, after the Federal Open Market Committee (FOMC) Meeting Minutes, conveyed hawkish bias of the policymakers, suggesting a faster rate-hike and plans to discuss balance-sheet normalization. That said, St. Louis Fed President James Bullard pushed for a March rate hike whereas Federal Reserve Bank of San Francisco President and an FOMC member Mary C. Daly marked the need to raise interest rates to keep the economy in balance.

It should be noted that the UK’s Services PMI rose past the initial forecast to 53.6 in December while the US data came in softer. Among them were, US Factory Orders, Weekly Jobless Claims, ISM Services PMI and Good Trade Balance.

Amid these plays, the US 10-year Treasury yields refreshed a nine-month high to poke 1.75% before closing with 2.5 basis points (bps) of a daily gain near 1.728%. The same weighed on the Wall Street benchmarks even as downbeat data pushed bears to satisfy with smaller losses whereas the S&P 500 Futures print mild gains by the press time.

Looking forward, a light calendar in Asia-Pacific, as well as the UK, will join the cautious mood ahead of the key US data and may restrict immediate GBP/USD moves. However, Brexit and covid updates may favor the bulls.

That said, forecasts suggest the headline US Nonfarm Payroll (NFP) rise from 210K to 400K while the Unemployment Rate may have eased to 4.1% from 4.2% prior. The underemployment rate, however, is likely rising from 7.8% to 8%.

Read: US Nonfarm Payrolls December Preview: The labor market seconds Fed policy

Technical analysis

Although GBP/USD portrayed another failure to cross the 100-DMA level surrounding 1.3560 on Thursday, bears need a clear downside break of the late November’s swing high close to 1.3510 to take entries.