The GBPUSD pair took off as investors reflected on the latest news on the Omicron variant and the expectation that the Bank of England (BOE) will hold steady in the coming year. The pair rose to a high of 1.3400, which was the highest level since November 22nd.
Omicron fears wane
The GBPUSD pair declined sharply last week even after the BOE decided to hike interest rates. The decline happened as investors remained concerned about the rising number of Omicron infections in the country.
Indeed, the UK has been confirming more than 80,000 new infections every day, the highest number since the pandemic started. Therefore, investors have been concerned that these new cases will push the UK government to roll back lockdowns. That’s because the government has already activated Plan B measures that include encouraging people to work from home.
This week, however, there have been some good news about Omicron. First, data from South Africa showed that the number of new infections was falling, which is a sign that the variant has peaked.
Second, another report from the UK and South Africa showed that the new variant had milder symptoms than Delta. Most people infected with the variant have little to no need for hospitalization.
Other reports showed that existing vaccines – except Sinovac – offered some protection against the variant.
At the same time, UK officials, including Rishi Sunak and Boris Johnson, have insisted that the country will not go back to lockdowns.
Therefore, the GBPUSD pair has risen since investors expect that the BOE will not slow down on its tightening process. As such, it could implement about 3 to four rate hikes in the coming year. This makes it the most hawkish central bank in the G7.
US economic data
The GBPUSD also rose after a series of US economic data. On Wednesday, the closely watched Conference Board’s consumer confidence data rose to 115 in December. This was a surprise considering that the US is going through a major inflationary wave and the number of Covid-19 cases is rising.
On Thursday, the US also published positive economic numbers. The data revealed that the US core personal consumer expenditure (PCE) rose from 4.2% in October to 4.7% in November. This was the highest number since the 1980s. The PCE is a closely watched number since it is the Fed’s favorite inflation gauge.
Additional data showed that the country’s durable goods orders rose sharply in November. The headline durable goods orders rose by 2.5% while the core durable orders rose by 0.8%.
The labor market is tightening as well. According to the Labor Department, initial jobless claims declined to 205k last week.
Therefore, the GBPUSD pair rose after these strong US data because investors have embraced a risk-on sentiment after the recent reports on Omicron. This explains why the key US indices like the Dow Jones and S&P 500 have risen this month.
The four-hour chart shows that the GBPUSD pair found a strong support at around 1.3167 level. It has struggled moving below this price several times this month. Therefore, it is understandable why it made a bullish breakout on Thursday. As it did, the pair managed to move above the 25-day and 50-day moving averages. It also rose above the key resistance level at 1.3375, which was the highest level on December 16th.
Therefore, the pair will likely keep rising as bulls target the 50% Fibonacci retracement level at 1.3500 in the coming days.