December 8, 2021 12:42:59

Cable slipped this morning to year-to-date lows below 1.32, as imminent further restrictions may be announced by the UK government due to the new Coivd-19 variant. A press conference is rumoured to be scheduled for 17.30 GMT today after the cabinet has agreed the measures. The relative uncertainty surrounding Omicron is still a key concern for markets, after the risk rally this week has seen investors’ high cash levels being put to work.

The market currently prices in around a 40% chance of a 15bp rate hike at next week’s Bank of England meeting, down from above 60% earlier in the week. More restrictions will dampen the growth outlook and potentially push any rate move to the bank’s February meeting when it has new economic projections. We heard from Deputy Governor Broadbent on Monday, which is the last scheduled speech ahead of the blackout period. He also played down the odds of a December rate hike, acknowledging that the Omicron variant will take time to be assessed.

In contrast, expectations are high for the Fed meeting next week and a potential announcement around a faster taper and more tightening. This divergence in policy expectations may see sterling continue to struggle, despite the upbeat risk mood.

Little support for oversold GBP

The bearish trend in GBP/USD has picked up since late October. Those highs around 1.38 were capped by trendline resistance from the June top. Support was seen around the September trough at 1.3411, but prices have moved consistently lower over the past few weeks in a series of lower highs and lower lows.

The bottom today at 1.3160 dropped just below the 38.2% Fib level retracement from 2020 at 1.3165. The 200-week SMA offers further support at 1.3145. Prices are oversold on the daily RSI so a correction may be seen. Resistance is the 20-day SMA at 1.3347, but the pair will need to get above 1.3411 to stop the bearish momentum.