GBP/USD stabilises in mid-1.2200s, bears eye 1.20 level ahead of busy week for UK/US economic events

• GBP/USD has stabilised in the mid-1.2200s were it trades flat ahead of a busy week of US/UK economic events.
• Analysts think that if sentiment continues to deteriorate, the risk-sensitive pair could be pressured below 1.20000.

GBP/USD has stabilised in the mid-1.2200s on Monday against the backdrop of a nervous start to the week for global risk assets following weaker than expected Chinese Industrial Production and Retail Sales data released over the weekend. The data highlighted concerns about global growth as China, the world’s second-largest economy, continues to pursue strict lockdown policies in a bid to contain the spread of Covid-19.

These concerns, coupled with worries about central bank tightening amid still sky-high inflation have weighed heavily on GBP/USD in recent weeks. While sterling isn’t the highest beta of the major G10 currencies, it is viewed as more risk-sensitive than, say, the euro. US/UK economic and central bank policy divergence is another factor that has weighed heavily on the pair in recent week, with growth holding up better in the US and the Fed looking much more hawkish than the BoE.

Meanwhile, some traders are citing a recent uptick in Brexit newsflow, with tensions around the Northern Ireland Protocol back in the limelight, as capping GBP/USD rallies. At current levels nearly bang on 1.2250, GBP/USD is nearly 100 pips higher versus last Friday’s lows, but has by no means broken out of the recent bearish trend.

Analysts have been calling for the pair to break below 1.2000 this week if the market’s broader appetite for risk continues to deteriorate. In terms of economic events, cable traders have a lot to keep an eye on, with April US Retail Sales data out and Fed Chair Jerome Powell speaking on Tuesday and UK labour market, Consumer Price Inflation and Retail Sales data all also out this week. Traders should also keep an eye on remarks from NY Fed President and influential FOMC member John Williams later on Monday.