Sterling edges lower

The British pound has reversed directions on Tuesday and is in negative territory. In North American trade, GBP/USD is trading at 1.3232, down 0.24% on the day.

Markets split over BoE rate hike

With a dearth of tier-1 events on the calendar, investors are keeping an eye on the Bank of England, which holds a policy meeting next week. The December 16^th will be a live one, with the markets split on whether the bank will press the rate trigger or hold off.

The markets are being cautious about a rate move after getting tripped up by the November meeting. Governor Andrew Bailey had sent out strong signals that the bank would raise rates in order to curb inflation. However, not only did the bank stay on the sidelines, Bailey voted along with the majority against a rate hike. A rate hike was a 50/5o toss-up until the Omicron variant of Covid showed up on the scene, triggering fears of another wave of Covid and weighing on the financial markets. Omicron has made it more likely that the bank refrains from a rate hike, although some BoE members have been warning that inflation could run even higher. With the likelihood of a rate hike dropping, the outlook for the pound is not promising. GBP/USD fell 2.78% in November and has added to these losses in December.

The Federal Reserve is also on the radar, with the FOMC policy meeting next week. As with the BoE, the Fed is carefully monitoring Omicron. Reports that Omicron is less lethal than previous variants were reiterated by Dr. Anthony Fauci on Tuesday, much to the relief of the markets. If these reports are confirmed, the Fed will have a clear path to accelerate its taper and raise rates earlier than previously anticipated.

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GBP/USD Technical Analysis

• GBP/USD has support at 1.3161 and 1.3091
• There is resistance at 1.3336 and 1.3441

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