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British Pound (GBP) Outlook: A Volatile Week Ahead for GBP/USD

British Pound (GBP) Outlook: A Volatile Week Ahead for GBP/USD

Nick Cawley, Strategist

GBP/USD Price, Chart, and Analysis

  • The UK to go into overdrive on Omicron boosters.
  • Bank of England to stand pat on Thursday, Fed to offer further guidance.

Beleaguered UK Prime Minister Boris Johnson has announced that everyone over 18 in England will be offered a booster jab this week as he says that ‘there is a tidal wave of Omicron coming’. The new emergency vaccination program will include help from the military and will look to offer up to 1 million jabs a day to hit the ambitious target of offering a third jab to every eligible adult in England by the end of the year.

Speaking on the BBC earlier today, UK Health Secretary Sajid Javid said, "What we’ve learnt about this new variant, Omicron, in the past week is, first of all, it’s spreading at a phenomenal rate. The number of infections is doubling every two or three days, there’s going to be a tidal wave of infection.The second thing we’ve learnt in the past week is that two doses of the vaccine are not enough, but three doses – with a booster shot – is." Just over 40% of the population over the age of 12+ have had three doses so far.

British Pound (GBP) Outlook: A Volatile Week Ahead for GBP/USD

While the spread of Omicron remains a serious threat to the UK economy, macro data takes over this week as the main driver of any Sterling price action. Closely followed employment and inflation data on Tuesday and Wednesday is followed by the latest Bank of England policy decision on Thursday. In the run-up to this meeting, expectations for a 15 basis point interest rate hike had been fully priced in, but over the last couple of weeks, the spread of the new covid-19 variant has seen these expectations erode with the market now expecting the BoE to leave all policy settings unchanged until the February meeting.

And one day before this decision, the US Federal Reserve Bank will announce their latest monetary policy decision. While there will be no change to the bank’s interest rate, the bond-buying program (QE) is expected to be pared back further, while the latest Fed dot plot is expected to show at least two 0.25% rate hikes next year, and very possibly three.

Keep up to date with all market-moving data releases and events by using the DailyFX Calendar

British Pound (GBP) Outlook: A Volatile Week Ahead for GBP/USD

Learn the Basics of Technical Analysis

Cable has been under pressure over the last months from both a strong US dollar and a weak British Pound. From an early-June high of 1.4249, cable has been stuck in a well-defined downtrend with lower highs and lower lows dominating price action all the way down to 1.3162. GBP/USD currently trades around 1.3225 and is trying to build a base just above its recent multi-month low. With a raft of important macro events ahead this week, this may prove difficult. However, if the BoE decides to hike rates on Thursday, this will send Sterling popping higher towards a short-term target zone of 1.3350-1.3400.

GBP/USD Daily Price Chart December 13, 2021

British Pound (GBP) Outlook: A Volatile Week Ahead for GBP/USD

Retail trader data show 72.03% of traders are net-long with the ratio of traders long to short at 2.58 to 1. The number of traders net-long is 3.21% higher than yesterday and 4.01% lower from last week, while the number of traders net-short is 2.96% higher than yesterday and 30.22% higher from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests GBP/USD prices may continue to fall. Positioning is more net-long than yesterday but less net-long from last week. The combination of current sentiment and recent changes gives us a further mixed GBP/USD trading bias.

What is your view on GBP/USD – bullish or bearish?? You can let us know via the form at the end of this piece or you can contact the author via Twitter @nickcawley1.

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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