GBP/USD regains some composure and bounces off lows near 1.2020

• GBP/USD manages to reverse part of the recent sell-off.
• BoE’s C.Mann sees upside risks to the inflation outlook.
• UK Construction PMI improved a tad in January.

The British pound manages to somewhat shrug off the current dollar strength and motivates GBP/USD to rebound from earlier lows near 1.2020 on Monday.

GBP/USD looks supported near 1.2020

GBP/USD regains the smile and leaves behind the earlier drop to fresh 5-week lows in the 1.2025/20 band at the beginning of the week.

In fact, Cable manages to gather some upside traction despite the persistent buying interest in the greenback, which has already lifted the USD Index (DXY) to new 4-week peaks well north of the 103.00 barrier.

In the UK docket, BoE MPC member C.Mann said she sees upside risks to the inflation outlook, at the time when she added that the consequences of under-tightening far outweigh the alternative.

Data wise, New Car Sales expanded 14.7% in the year to January and the S&P Global/CIPS Construction PMI dropped marginally to 48.4 in the same month (from 48.8).

What to look for around GBP

Same as with the rest of the risk complex, the British pound is expected to track the dollar’s price action and the policy divergence between the Federal Reserve and the Bank of England when it comes to Cable’s near-term direction.

Furthermore, the UK economy’s bleak outlook in the next months coupled with elevated inflation leaves the prospects for further gains in the Sterling somewhat curtailed in the short term, while a BoE near its terminal rate does not look helpful for the currency either.

Key events in the UK this week: BRC Retail Sales Monitor (Tuesday) – Flash Q4 GDP Growth Rate, Balance of Trade, Construction Output, Industrial Production, Manufacturing Production (Friday).

GBP/USD levels to consider

As of writing, the pair is gaining 0.02% at 1.2052 and a breakout of 1.2174 (55-day SMA) would open the door to 1.2447 (2023 high January 23) and then 1.2666 (weekly high May 27 2022). On the other hand, the next support emerges at 1.1950 (200-day SMA) followed by 1.1841 (2023 low January 6) and finally 1.1807 (100-day SMA).