GBP USD Weakens as Britain Prepares for Omicron ‘tidal wave’

GBP USD Breaks Through 1.36 Resistance Level

British Prime Minister Boris Johnson’s assessment of the Omicron coronavirus variant pushed the pound lower against the dollar on Monday. Over the weekend, the PM warned of a “tidal wave” of omicron infections that threatens to overwhelm the country’s health system.

“I’m afraid we’re now facing an emergency in our battle with the new variant Omicron,” said Mr Johnson.

His outlook triggered more uncertainty, leading investors to push back bets for the Bank of England (BoE) to hike interest rates to February.

BoE rate-setters meet on Thursday to vote on whether to tighten monetary policy to control surging inflation, with investors pricing in a status quo rather than a rate hike given the economic uncertainties created by Omicron.

GBP USD briefly dipped below the 1.32 benchmark overnight after the first publicly confirmed death globally was recorded with the Omicron variant in the UK.

Mr Johnson said we must recognise “the sheer pace at which (Omicron) accelerates through the population” and that we should ignore reports that it’s a milder variant.

The UK economy welcomed some much-needed positive news this morning when data released by the Office for National Statistics (ONS) showed the nation’s unemployment rate has fallen. The figures also provided further evidence that the end of the furlough scheme in September was less stressful on the jobs market than anticipated.

The ONS said the jobless rate dropped to 4.2% in the three months to October as employment continued to recover; however, it remained 0.2% above its pre-pandemic level.

The report also showed that employers added 257,000 staff to their payrolls last month, indicating that the jobs market experienced a soft landing following the end of the furlough wage support scheme.

Dollar supported by Fed expectations and safe-haven demand

The dollar found itself on solid footing on Monday at the start of a week that is dominated by central bank meetings. Front and centre is the December gathering of Federal Reserve policymakers, with investors – who are looking for clues on the timing of US interest rate increases next year – expecting the central bank to announce it will cease its asset purchases sooner than expected.

The safe-haven dollar was also supported by continued uncertainty about the Omicron coronavirus variant.

Looking ahead

The producer price index (excluding food and energy) is scheduled for release from the US economy today.

The latest UK consumer price index (CPI) reading is due today, a day before the BoE announces its latest interest rate decision. UK inflation accelerated to 4.2% in October from 3.1% in September. Economists’ tip annual CPI to reach 4.7% last month.

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