The British currency has gained confidence and is now trading steadily higher. However, the uptrend may not last long due to the complicated economic situation in the UK.
On Tuesday, December 21, the pound advanced along with other risk assets supported by optimistic sentiment in the market after the Omicron fears eased. On Wednesday, December 22, the GBP/USD pair is trading near 1.3277. The pair has recovered from a deep fall to 1.3200 recorded earlier this week. At the same time, bears are aggressively fighting back near the resistance level of 1.3271. According to analysts, the pair is expected to break through this level in the near future. This will offset all the efforts made by the bulls.
The sterling was supported by hopes for improvement in Brexit negotiations. Earlier, the British Prime Minister said there had been progress in negotiations between the UK and the EU. However, there are some controversies that prevent the parties from reaching a compromise. UK Foreign Office officials stressed that the government's position on the Northern Ireland Protocol remained the same. The British authorities expect concessions from Brussels. Otherwise, they threaten to revoke the protocol using Article 16.
The pound's further uptrend will be stalled if the UK introduces another lockdown to prevent the spread of the Omicron virus. Earlier, Prime Minister Boris Johnson unveiled the plan to impose tougher restrictive measures to curb the spread of the infection. The new lockdown was meant to start on December 28. However, positive news from pharmaceutical giant Moderna on the development of a new vaccine against Omicron has revived optimism. So, the UK authorities canceled tough quarantine measures ahead of the New Year and Christmas holidays and the sales season.
The recovery in global risk appetite has supported the pound. Another factor to drive the sterling was financial help to local businesses provided by the government. On Tuesday, the UK announced the launch of the financial aid program for businesses affected by the new Covid-19 wave. According to Rishi Sunak, UK Treasury Secretary, the government will provide £1 billion to support enterprises hit hardest by the Omicron strain. First of all, this applies to companies of the leisure and entertainment sector: they will receive a one-time payment of £6,000.
Currently, UK business confidence has declined on the back of a slowdown in economic growth. At the same time, the country's Office for National Statistics has revised the GDP growth forecast upwards. According to current reports, in the third quarter of 2021, UK economy expanded by 6.8% year-on-year and by 1.1% on a quarterly basis. Therefore, the outlook for the pound is getting more positive. Analysts believe GBP has high growth potential and expect it to rise in early 2022.
