Forex Market: GBP/USD falls a second day on Omicron-related concerns, post-BoE gains now erased

GBP/USD extended a loss from last Friday at the start of the new week amid broad risk aversion across financial markets as surging Omicron infections in Europe raised concerns of potential lockdowns.

Britain’s Deputy Prime Minister Dominic Raab said earlier Monday that he could not make any guarantees when asked if there would be further restrictions imposed prior to Christmas to curb the virus spread.

The Sterling remained under pressure also due to some negative Brexit-related headlines. It became clear that Foreign Secretary Liz Truss will become Britain’s lead negotiator with the EU over trade to Northern Ireland after Brexit minister David Frost resigned.

Last Thursday the major currency pair hit a three-week high of 1.3374, after the Bank of England’s monetary policy committee voted by 8 votes to 1 in favor of raising the Bank Rate from 0.10% to 0.25%. The MPC made its decision, as it weighed a surge in UK CPI inflation and economic slowdown concerns, stemming from the fast spread of the Omicron coronavirus strain.

At the same time, there was a 9-0 vote in favor of maintaining the scale of quantitative easing at GBP 895 billion.

However, gains in GBP/USD following BoE’s policy decision have now been erased.

“Support from the blindsided BoE action in raising rates was only temporary with focus more on Omicron and government disarray,” NAB strategists wrote in a note to clients.

As of 10:03 GMT on Monday GBP/USD was edging down 0.33% to trade at 1.3190, while moving within a daily range of 1.3173-1.3245. Last week the major Forex pair went up as high as 1.3374, which has been its strongest level since November 24th (1.3390). The currency pair has retreated 0.82% so far in December, following another 2.82% loss in November.

Bond Yield Spread

The spread between 2-year US and 2-year UK bond yields, which reflects the flow of funds in a short term, equaled 12.16 basis points (0.1216%) as of 9:15 GMT on Monday, down from 14.2 basis points on December 17th.

Daily Pivot Levels (traditional method of calculation)

Central Pivot – 1.3268
R1 – 1.3305
R2 – 1.3377
R3 – 1.3415
R4 – 1.3453

S1 – 1.3196
S2 – 1.3158
S3 – 1.3087
S4 – 1.3015