• GBP/USD hit its highest levels in over a month on Tuesday above 1.3450, despite UK Boxing Day market closures.
  • The pair has been lifted in recent sessions as traders price out the most bearish UK Omicron lockdown scenarios.

GBP/USD has pushed to its highest level in more than a month on Tuesday, crossing above its 50-day moving average (currently at 1.3443) for the first time since October and surpassing 1.3450. On the day, the pair is trading with modest gains of between 0.1-0.2% as FX markets more broadly remain rangebound/subdued amid holiday-thinned trading conditions. Indeed, UK markets are currently shut for the Boxing Day bank holiday. The next key area of resistance that the sterling bulls will be eyeing is around the 1.3500 level.

The pair now trades more than 2.0% higher versus last Monday’s lows, a rally that has been driven by pricing out of some of the more bearish scenarios for the UK economy over the coming months. Robust evidence emerged last week from multiple scientific courses that the Omicron Covid-19 variant currently rampant in the UK is much less likely to result in severe disease versus the Delta variant. These studies, coupled with the fact that UK Covid-19 hospitalisation rates are yet to show any signs of a substantial pick up, means that the likelihood of the government significantly tightening pandemic-related curbs to slow transmission has greatly diminished.

A lockdown in England ahead of New Year’s Eve has been ruled out by the UK Health Secretary as the government continues to assess incoming data, though further restrictions could be imposed in January. FX market price action suggests markets are betting that new restrictions won’t be announced. GBP outperformance may continue if the UK Omicron hospitalisation data remains favourable and further restrictions unlikely. There is next to no important data out of the UK this week, suggesting the scope for further GBP/USD rebound is more limited than it otherwise would be, given expectations for markets set to remain subdued.

This article was originally published by Fxstreet.com.Read the original article here.


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