GBP/USD gathers strength above 1.2000 as upbeat China PMI ameliorates risk-off mood

• GBP/USD is oscillating in a narrow range around 1.2040 ahead of BoE Bailey’s speech.
• Upbeat Caixin Manufacturing PMI data has ameliorated the negative market sentiment.
• The street looks less impressed by the Brexit deal and diverting attention to data publications for Pound Sterling’s outlook.

The GBP/USD pair is displaying a sideways auction after sustaining above 1.2020 in the early European session. The Pound Sterling is expected to remain sideways as investors are awaiting the release of the speech from Bank of England (BoE) Governor Andrew Bailey, which is scheduled for Wednesday.

The Cable is expected to stretch its recovery above 1.2040 vertically as the US Dollar Index (DXY) is expected to extend its losses amid a recovery in the risk-on market mood.

The USD Index is struggling to find feet as the release of the upbeat Caixin Manufacturing PMI data has ameliorated the negative market sentiment. S&P500 futures have recovered their entire losses generated in the Asian session now, portraying a sheer improvement in the risk appetite of the market participants. However, the 10-year US Treasury yields look still solid above 3.93%.

Going forward, the speech from BoE Governor Andrew Bailey will be of utmost importance. BoE Bailey is expected to provide cues about the likely monetary policy action ahead. A hawkish tone is expected from BoE Governor as the United Kingdom (UK) inflation is still in the double-digit figure despite a prolonged spree of rate hikes.

Meanwhile, the street seems not confident about the Pound Sterling outlook despite the Brexit deal. Economists at Commerzbank are of the view that “An agreement in connection with the Northern Ireland protocol is likely to have little influence on short-term inflation developments and as a result, the market is likely to return its attention to data publications and comments by BoE members again pretty quickly. In this context, we remain skeptical of Sterling.”