GBP/USD bears back in play, pressure in the 1.3220's

• GBP/USD bears await a less hawkish outcome from the BoE.
• The US dollar is a favourite in times of uncertainty, to weigh on the pound.

GBP/USD is back under pressure and has been sold off from the post Employment report data hoghs scored in London's trade. At the time of writing, the pound is 0.12% higher on the day but below the 1.3256 highs and testing lower into the 1.3220s. The low of the day was 1.3190. 

Risk sentiment remains muted, ahead of this week's flurry of central bank meetings and FX markets are moderately quiet. However, it is a busy week for UK macro and markets await the major event risk of the Federal Reserve and the Bank of England.  

BoE to tread carefully

We had the first of a string of events in today's labour market data that comes before tomorrows inflation report and the BoE on Thursday. The data today suggested that the end of the furlough programme went smoothly. The Unemployment Rate improved a tick to 4.2%, better than the MPC's recent forecast of 4.4%.

However, even continued improvement in the labour market is unlikely to push the MPC to hike this week given the threat of the Omicron variant. After all, the MPC signalled in November that it is comfortable with waiting for more data and the spread of the Omicron variant offers a good reason to walk a line of caution. 

The consensus is for the Bank of England to hold which could hurt the pound further which has been declining since June of this year. The weakness is suggestive of mounting malaise among GBP investors with concerns over the coronavirus and headwinds to UK growth.

Additionally, the lack of reassurances around the post-Brexit UK economic outlook has been an additional weight. The market is still positioned for a fair amount of tightening next year, according to the latest CFTC data. However, if investors continue to reposition for a less hawkish BoE for 2022, the pound in the spot market will continue to feel the pressures. 

Meanwhile, the focus will be on a) how many members will vote to remain on hold, and b) forward-looking language. If the door is left open for, say, a Feb rate hike, then the pound can find some stability on that given how short the market is already, at least as compared to the 2021 average, and having already priced out a rate hike this time around. 

Bullish bets on the US dollar

Meanwhile, there is a bullish bias in the greenback. ''Growth, inflation and the global backdrop are all still helping the dollar,'' Kit Juckes at Societe Generale explained in a note.

He explained that the US initial jobless claims data showed the lowest number of claimants since 1969, and he and his colleagues now await the November CPI report with trepidation. He also added that ''the first signs from China that further yuan strength will be resisted also helps the dollar as does concern about the Omicron variant.''

Overall, the popular economist in the forex space explained,'' the dollar is increasingly seen by some investors as the best hedge against a risk shock, given that the bond market no longer performs this task adequately.''