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GBP Forecast: Omicron Adds Uncertainty to BoE Rate Rise

GBP Forecast: Omicron Adds Uncertainty to BoE Rate Rise

GBP/USDFUNDAMENTAL HIGHLIGHTS:

  • GBP SLIPS FOR SECOND CONSECUTIVE WEEK
  • BOE RATE RISE IN DOUBT

A second consecutive weekly drop for the Pound, in which Cable posted a fresh 2021 low following a brief break below the 1.32 handle. Support from Chair Powell regarding a faster QE taper among the main catalysts behind the fresh downside in GBP, coupled with continued concerns over the Omicron variant.

GBP SLIPS FOR SECOND CONSECUTIVE WEEK

Source: Refinitiv

BOE RATE RISE IN DOUBT

On the UK front, doubts over a December BoE rate rise has increased after cautious comments from BoE’s Saunders, who is typically seen as the most hawkish member of the MPC. The rate setter noted that there may be an advantage in waiting for more information on the Omicron variant before deciding to adjust policy settings. Additionally, Saunders stated that he sees a limited increase in the Bank Rate, which is in stark contrast to OIS markets pricing in near 1% interest rates by the end of 2022. In turn, the probability for a December rate hike fell from 50% to 30%, with scientific data on omicron seemingly another condition for a rate rise.

Looking ahead to next week, headlines regarding the vaccine’s effectiveness against the Omicron variant will be among the main focal points. However, given that this will be headline-driven, there is little edge to be had. Elsewhere, BoE’s Broadbent is due to speak on Monday, and given the cautious comments by Saunders, the focus will be on his views over the Omicron variant.

GBP TECHS

In terms of levels to watch, below the psychological 1.32 handle, eyes are on the 200WMA, which also coincides with the post-Covid crash fib retracement at 1.3150-55. This would be the area to look for GBP to base out.

GBPUSD Chart: Weekly Time Frame

Source: Refinitiv, DailyFX

EUR/GBP: For those looking to fade GBP weakness, a more appropriate avenue would be via EUR/GBP. I would be looking for pullbacks on rallies into the 200DMA (0.8561).

Source: Refinitv

GBP/USD Bullish
Data provided by
of clients are net long. of clients are net short.
Change in Longs Shorts OI
Daily -12% 12% 1%
Weekly -15% 14% 0%
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