It has been a very good week for the British pound, which is up 1.29%. So good, in fact, that this will likely mark the pound’s best week of 2021. On Thursday, GBP/USD punched above the 1.34 line for the first time in a month.
The pound’s newfound strength is a result of stronger risk appetite. When Omicron first appeared on the scene several weeks ago, there were dire predictions about the damage another wave of Covid would cause to the global economy. Omicron has spread very quickly across Europe and the US, but investors remain optimistic that although Omicron is much more contagious than Delta, the symptoms are milder, according to some medical reports. With risk sentiment on the rise this week, we are seeing a movement away from the safe-haven US dollar, and the pound has gained ground.
Markets dismiss Omicron, at their peril?
Despite the optimism displayed by the markets, it is far from clear that Omicron is nothing more than a tempest in a teapot. More research is needed to determine if Omicron is indeed less severe than Delta. Even if this is the case, Omicron could cause severe symptoms in unvaccinated people and put a huge strain on hospital resources. As well, it would be folly to ignore the non-developed nations, which are a majority of the world. For many of these countries, the only available vaccine is Sinovac, which may not be effective against Omicron. The optimism we are seeing in the equity markets will have been badly misplaced if Omicron proves to be more deadly than the markets want to believe.
In the UK, there was some light in the pre-Christmas gloom after Prime Minister Boris Johnson announced that it would not introduce new restrictions before Christmas. Still, Johnson warned that there could be further measures after the holiday. Johnson is under intense criticism after new reports that he and government ministers ignored Covid health restrictions against social gatherings. Johnson’s claim that these gatherings were working meetings have been met with scorn and there is even talk that the Prime Minister could be replaced shortly.
GBP/USD technical analysis
-
GBP/USD has support at 1.3349 and 1.3261.
-
There is resistance at 1.3462 and 1.3550.
This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors — not necessarily OANDA’s, its officers or directors. OANDA’s Terms of Use and Privacy Policy apply. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.
Recommended Content
Editors’ Picks
EUR/USD treads water just above 1.0400 post-US data
Another sign of the good health of the US economy came in response to firm flash US Manufacturing and Services PMIs, which in turn reinforced further the already strong performance of the US Dollar, relegating EUR/USD to the 1.0400 neighbourhood on Friday.
GBP/USD remains depressed near 1.2520 on stronger Dollar
Poor results from the UK docket kept the British pound on the back foot on Thursday, hovering around the low-1.2500s in a context of generalized weakness in the risk-linked galaxy vs. another outstanding day in the Greenback.
Gold keeps the bid bias unchanged near $2,700
Persistent safe haven demand continues to prop up the march north in Gold prices so far on Friday, hitting new two-week tops past the key $2,700 mark per troy ounce despite extra strength in the Greenback and mixed US yields.
Geopolitics back on the radar
Rising tensions between Russia and Ukraine caused renewed unease in the markets this week. Putin signed an amendment to Russian nuclear doctrine, which allows Russia to use nuclear weapons for retaliating against strikes carried out with conventional weapons.
Eurozone PMI sounds the alarm about growth once more
The composite PMI dropped from 50 to 48.1, once more stressing growth concerns for the eurozone. Hard data has actually come in better than expected recently – so ahead of the December meeting, the ECB has to figure out whether this is the PMI crying wolf or whether it should take this signal seriously. We think it’s the latter.
Best Forex Brokers with Low Spreads
VERIFIED Low spreads are crucial for reducing trading costs. Explore top Forex brokers offering competitive spreads and high leverage. Compare options for EUR/USD, GBP/USD, USD/JPY, and Gold.