GBP/USD retreats towards 1.3200 on coronavirus, Brexit fears, UK inflation, Fed in focus

GBP/USD struggles to keep the bounce off the weekly bottom, easing to 1.3220 during Wednesday’s Asian session.

While upbeat UK data and comments from the International Monetary Fund (IMF) favored the cable pair’s bulls, fresh fears concerning the coronavirus and Brexit recall the bears on a key day.

With a reduction in the UK’s Claimant Count Change and Unemployment Rate, not to forget firmer Average Earnings, odds of the Bank of England’s (BOE) hawkish performance on Thursday can’t be ruled out. The IMF urged, per Reuters, the Bank of England on Tuesday to avoid an "inaction bias" when it comes to raising interest rates as it forecast British inflation would hit a 30-year high of around 5.5% next year.

It should be noted, however, that IMF Chief Kristalina Georgieva cited Brexit fears as a challenge to the UK’s economy. “Brexit dealt significant damage to trade with the European Union and there would be further difficulties when Britain implements customs checks on EU imports on Jan. 1, Georgieva said,” per Reuters. Alternatively, the UK Express quotes Irish Foreign Minister Simon Coveney saying, “The EU is anxious to move ahead unilaterally if the UK does not agree on medicine supply to Northern Ireland this month.”

Elsewhere, the UK’s National Health Service (NHS) told, per the UK Telegraph, to the Pharmacies that they cannot have any more extra rapid Covid tests - even though entire cities have run out. The UK policymakers are also warned over a flood of virus-led hospitalization as the cases jump. Reuters said, “Infections from the Omicron variant of the coronavirus have risen in the United Kingdom with the number of new cases reaching 59,610 on Tuesday, the highest figure since early January.”

The UK isn’t the only one suffering from the virus variant as Omicron spreads across the board and challenges the policy hawks as the Fed braces for a crucial day, with faster tapering and rate hike clues eyed.

For now, the UK Consumer Price Index (CPI) for November, expected 4.7% YoY versus 4.2% prior, will be the key for the GBP/USD traders.

Read: Fed Interest Rate Decision Preview: Can the FOMC satisfy and mollify the markets?

Technical analysis

GBP/USD remains on the way to refresh yearly low of 1.3160 even if the weekly support line tests short-term sellers around 1.3200. Meanwhile, the 10-DMA level near 1.3245 guards immediate upside.