GBP/USD leans bearish towards 1.3050 and then 1.2920

At the time of writing, GBP/USD is idling 1.32 the figure after being in a range of between 1.3205 and 1.3216. There is a tendency to the downside on the charts following the drop at the start of the week due to heightened concerns over the spread of Omicron. Cable fell around 60 pips since the start of this week.

The UK's Covid alert level has been raised to level four. This is meaning that there is a high or rising level of transmission for the first time since May. The spread has dented rate hike prospects for this week's Bank of England meeting. 

GBP/USD looking into the abyss

It has also been reported that at least one person in the UK has died with the Omicron coronavirus variant, the UK's prime minister, Boris Johnson, has said. Health Secretary Sajid Javid told MPs Omicron now represented 20% of cases in England. Mr Javid also said the UK Health Security Agency (UKHSA) estimated the current number of daily infections was around 200,000.

Omicron has risen to more than 44% of cases in London and is expected to become the dominant variant in the city in the next 48 hours, he said. Meanwhile, BBC medical editor Fergus Walsh argues that with Omicron doubling every two to three days, it could go from a small to a huge number very quickly. Data also suggests Omicron is more transmissible than previous variants, with cases doubling in the UK every two to three days.

This leaves GBP/USD looking into the abyss at the start of the week and traders will be looking to the UK's Parliament that will vote on the government's strategy to counter the Omicron variant on Tuesday. A Conservative rebellion is anticipated although Labour leader Sir Keir Starmer said it was his party's "patriotic duty" to back the measures.

The macro will be weighed against the implications of social distancing measures from a new Plan B. These are being implemented to slow the spread of Omicron including advising people to work from home. Schools will also see numbers of pupils and staff dropping off for fear of the variant. Additionally, the prime minister has repeatedly declined to rule out further restrictions ahead of Christmas.

On the macro front for the week idea, employment and inflation data on Tuesday and Wednesday will precede the latest Bank of England policy decision on Thursday. Cable is suffering on the divergence between the BoE and the Federal reserve as trader expectations for a rate hike have been eroding due to the new variant with the market now expecting the BoE to leave all policy settings unchanged, at least until February.

GBP/USD technical analysis

The daily chart illustrates the downside potential for the coming week should investors continue to unwind long positions and/or add to shorts with 1.3050 eyed ahead of 1.2920.