GBP/USD: At risk of falling to 1.3175/50 on Omicron fears – Westpac

GBP/USD could see a short squeeze if Omicron's concerns subside prior to the Bank of England’s (BoE) “finely balanced” December meeting. However, further USD strength still risks a slide to 1.3150-75, economists at Westpac report.

Asset managers turned aggressively negative of GBP into December

“GBP is vulnerable to a sharp short squeeze, given the positions of asset managers, should the Omicron variant prove to be less concerning. Given the strength in recent survey data in the UK, this could tilt the bias of MPC towards acting with a rate hike rather than further prevarication.”

“EU/UK talks continue and recent distressing migrant deaths have intensified the tensions with France. EU tensions are therefore likely to limit any GBP upside.” 

“In the absence of a position squeeze, GBP/USD will remain at risk of a retracement (basis Mar 2020 low) towards 1.3150-75 on further USD strength.”