The US dollar index is in a depressed state: it declined from 96.54 to 96.03 this week, reflecting traders' attitude towards the US currency. It should be noted that either strong inflation data (personal consumption spending index) or strong data on consumer activity did not help the US currency. The significant increase in the volume of orders for durable goods also did not impress market participants. The narrow market is making itself felt, showing the traditional pre-holiday calm. In addition, many traders take profits for the month and year, thereby increasing the pressure on the US dollar. Therefore, the indicated currency is gradually retreating, allowing other currencies to recover some of the lost positions.
The pound sterling is the most successful at this. The GBP/USD pair has grown by almost 250 points for the last three days, thereby breaking the price movement algorithm. The fact is that for almost the whole of December, this pair symbolically retreated from the lows of the year (1.3150), after which it invariably returned to its place. Such price fluctuations allowed traders to go into purchases at the lower end of the range, and, accordingly, move to the area of 1.3300-1.3350. However, the pair broke through the "ceiling" of the range yesterday and updated the monthly high, reaching the level of 1.3435. And although the buyers of GBP/USD could not settle in the 1.34 area, this impulse became a "wake-up call" for the bears of the pair.
Major currency pairs are mostly traded in the wake of the US currency. At the end of the year, the greenback became complacent, allowing opponents to win back some of the lost positions. But in the case of the GBP/USD pair, the upward impulse is due not only to the weakening of the US dollar but also to the strengthening of the pound.
A quite ironic situation has developed. Actually, the pound is bombarded with numerous political problems. However, all these problems currently took a pause due to the pre-holiday period. Negotiations on the Northern Ireland and English Channel fishing issues have been suspended and will continue next year. The fate of Boris Johnson will also not be decided this year. It can be recalled that there have been issues over the prime minister for a long time: the British press has begun to seriously discuss the likely change of the leader. The head of the British government with enviable regularity falls into scandals of various calibers, against the backdrop of several criticisms from both Labor and his fellow party members.
In any case, all political processes, both external and internal, have been paused today. British parliamentarians, as well as Brexit negotiating groups, are on Christmas break. Therefore, the focus was on the coronavirus again, which cannot be delayed.
It can be admitted that the "coronavirus factor" has supported the British currency. The recent data suggest that Omicron is carried much more easily than Delta.
So, preliminary observational data from the UK and South Africa confirm that Omicron really leads to a milder course of the disease and much less often to hospitalization or death. For example, those infected with the new strain in South Africa have an 80% milder course of the disease compared to Delta. Over the three weeks of the spread of the new strain, the number of new cases significantly rose, but the proportion of hospitalized patients was 5%, compared with 14% in earlier waves of the epidemic. Moreover, the share of hospitalized and deaths in the country decreased to 4%, while during the previous waves, this indicator showed an upward trend, reaching 20%. Another important fact is that according to South African doctors, almost 90% of those who died from COVID-19 complications were unvaccinated or vaccinated with a single dose.
This is good news for the pound, which was under background pressure due to a possible lockdown. It can be recalled that the UK activated the so-called "Plan B" at the beginning of December, increasing quarantine restrictions. In particular, the citizens of the country were obliged to resume the remote work format. These measures did not stop Omicron: due to its high infectivity, the new strain began to actively spread throughout the country. Against this background, rumors appeared in the press that the British authorities will significantly increase the quarantine "from day to day". But in the end, these fears did not materialize: Prime Minister Johnson announced that new restrictions due to the pandemic will not be introduced "at least until Christmas" in England.
In addition, the pound reacted positively to other news as well. It became known that the British government will support the national leisure industry. The finance minister announced additional support for the hospitality and entertainment sector ahead of Christmas. Enterprises and companies working in this field will receive one-time subsidies in the amount of 6 thousand pounds.
Therefore, the stars have actually come together for buyers of the GBP/USD pair amid the pre-Christmas optimism, the weakening of the US currency, and political problems postponed for next year. The combination of these circumstances suggests that the pair's upward correction has not ended yet. The nearest resistance level is at 1.3490, which is the Tenkan-sen line on the weekly chart. If the US dollar continues to lose its position, the pound may test this target in the medium term.
