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.
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.