GBP/USD bears pressing on 1.33 the figure, BoE and Fed in focus

• GBP/USD holds near the 2021 low with risks tilted to the downside. 
• Central bank themes are driving risk and weighing on the pound. 

At the time of writing, GBP/USD is trading at 1.3311 and higher by some 0.12% on the day so far. The pair has recovered from a low of 1.3276 and has reached a high of 1.3352 so far.

The US dollar is stuck in the mud after yesterday's whipsaw when the greenback failed to capitalise on hawkish comments from the US Federal Reserve Chair Jerome Powell. DXY, an index that measures the US dollar vs a basket of currencies spiked around 40 points during his testimony to the Senate on Tuesday.

Powell said, "we are actually at our next meeting in a couple of weeks going to have a discussion about accelerating that taper by a few months." He also pledged to bury the term “transitory” and instead recommends Fed policymakers to consider explaining more clearly what the Fed thinks/means when it is talking about inflation.

His comments follow those of a number of Fed officials who in recent weeks have advocated for ending asset purchases sometime in the spring to allow for an earlier start of interest rate increases should they be needed to rein in inflation.

However, the US dollar fell back to the start again due to a relatively strong euro. Data from yesterday came in hot for both the German Unemployment Rate and EZ inflation. Additionally, the market has been very long of the US dollar and it couldn't rally as a safe haven on the covid risks nor on the back of a uber hawkish sounding Fed. 

The Eurozone preliminary estimate jumped by a hefty 0.8%-points to 4.9%, making this one of the biggest upside surprises in recent history.  This is also more than twice the central bank’s long-term target. The core estimate rose by no less than 0.6%-points. The market is now wondering if this challenge the ECB’s ‘transitory’ story as well come the December meeting? In doing so, the dollar could be starting to lose its edge with regard to central bank divergence. 

As for central banks, the British pound holds near the 2021 low versus the greenback as doubts grew on whether the Bank of England will raise interest rates at a policy meeting this month. The BoE said in November it would probably have to raise rates from an all-time low of 0.1% "over the coming months".

However, there are mixed feelings in the market because but policymakers have sounded increasingly divided on this prospect, especially after the new coronavirus variant was detected. Money markets were pricing in only 9 bps of rate hikes by the next meeting on Dec. 16 compared to 8 bps on Tuesday.

GBP/USD technical analysis

From a weekly perspective, the price is moving into a demand area between the low 1.30s and 1.3300. There is room for further declines within this bracket for the coming days as traders take on bullish commitments near the 1.32 figure and recent lows.