Forex Market: GBP/USD rebounds from an 11-month low as markets recover from Omicron shock

GBP/USD rebounded from an 11-month trough on Monday as currency markets recovered from the initial shock of Omicron’s discovery that triggered a rush to safe-haven assets.

The Omicron variant of the virus was discovered in South Africa last week, which urged many countries to accelerate border control tightening and rattled global markets on Friday.

Despite the hasty response, the new coronavirus strain has already been detected in Australia, the UK, Canada, Germany and Hong Kong.

Yet, market players seemed to have taken a more balanced view of risks related to the new COVID-19 variant at the start of the new week, while many were engaged in “buying the dip” trades.

“In terms of the outlook, for the UK it’s possibly a bigger risk as the market’s long-held assumption that the UK is unlikely to witness another lockdown,” Jordan Rochester, a strategist at Nomura, was quoted as saying by Reuters.

The possibility of new lockdowns could weigh on market expectations of BoE rate hikes, which has been a driving factor for the Sterling in recent weeks. Markets are pricing in an 8 basis point rate hike by the Bank of England on December 16th.

As of 12:01 GMT on Monday GBP/USD was inching up 0.03% to trade at 1.3340, while moving within a daily range of 1.3319-1.3363. Last Friday the Forex pair slipped as low as 1.3278, which has been its weakest level since December 21st 2020 (1.3188). The major currency pair has retreated 2.50% so far in November, following a 1.57% gain in October.

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 3.54 basis points (0.0354%) as of 9:15 GMT on Monday, down from 6.3 basis points on November 26th.

Daily Pivot Levels (traditional method of calculation)

Central Pivot – 1.3327
R1 – 1.3376
R2 – 1.3415
R3 – 1.3464
R4 – 1.3512

S1 – 1.3288
S2 – 1.3239
S3 – 1.3200
S4 – 1.3161