GBP/USD Price Regains to 1.35, Capped by Omicron and Brexit

• Despite rebounding from intraday lows, GBP/USD remains under pressure for a second consecutive day.
• Due to the increase in cases and the spread of infections in the United States, British Prime Minister Johnson fears significant pressure on the medical system.
• The final readings of the UK Manufacturing PMI and yield may delight traders ahead of ISM US Manufacturing PMI release.

With London opening on Tuesday, the GBP/USD price analysis remains mixed to bullish at around 1.3490, gaining 0.11% on Tuesday.

Higher US Treasury yields put pressure on the cable pair from a two-month high the day before. Concerns over the UK Coronavirus and Brexit also put pressure on the pair. The GBP/USD pair has been held back by recent market hesitancy before secondary UK and US data releases.

On Monday, US Treasury yields reached six-week highs for 30-, 20-, 10- and 5-year bonds as concerns over the South African Covid variant offset firmer expectations of a rate hike linked to the Federal Reserve in 2022.

As the number of Coronavirus cases at home, which has recently increased by about 158,000 cases, steadily rises, the British prime minister Boris Johnson warns that the National Health Services (NFS) will face significant stress in the coming weeks. The Reuters balance sheet says, “COVID concerns have again been the focus of investor attention since the start of the Christmas season.”. In the past week, the number of new cases of COVID-19 has doubled to 418,000 per day, largely due to the easily transmitted but milder variant of Omicron, Reuters reports.

Moreover, the rise in money market rates caused by three Fed rate hikes in 2022 and stronger inflation expectations in the US also put downward pressure on GBP/USD prices. According to Reuters, money markets already factored in the first rate hike in the US in May and two more by the end of 2022. Furthermore, the 10-year break-even inflation rate from the Federal Reserve Bank of St. Louis (FRED) showed further price pressures that would allow the Fed hawks to break through to a new high in six weeks, as well.

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On the other hand, some of the new Brexit rules will go into effect in 2022 and thus pose a challenge to the movement of goods, which, in turn, will put a tight supply chain to the test. The Financial Times (FT) reported: “Brexit customs controls later this year risk undermining the competitive environment for UK ports,” warned a group representing some of the country’s largest port operators. Several of the updates supporting Brexit have also welcomed freedom from foreign takeovers. Brexit’s progress is evident in the Northern Ireland (NI) issue. According to The Times, Boris Johnson was told that the fragile, power-sharing Northern Ireland government would inevitably collapse if the EU failed to implement the Border Protocol.

In the short term, the final UK manufacturing PMI for December, which is expected to confirm 57.6, will precede the US December ISM manufacturing PMI, which is forecast to rise to 60.2 from 61.1 previously.

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GBP/USD price technical outlook: Bulls to crack 1.35

The GBP/USD price has managed to recover back to the 1.3500 area. However, the price is facing some strong resistance by the 20-period SMA on the 4-hour chart. Sustaining below the level may not help bulls. Although the scenario is bullish, it is likely to see consolidation around the current level.