GBP/USD finds resistance near 1.31 on Monday, steadies around mid-1.30s

Construction sector in the UK continues to lose momentum.
US Dollar Index looks to close the third straight day higher.
EU's Barnier says the EU is ready to work on alternative solutions o the backstop during the transition.

Eren Sengezer FXStreet

After losing more than 100 pips in the previous week, the GBP/USD pair failed to stage recovery on Monday and continued to pull away from the multi-month highs that it set above 1.32 on January 25th. The pair, which touched a 10-day low of 1.3030 earlier in the session, was last seen trading at 1.3045, losing 0.3% on a daily basis.

The data published by the IHS Markit today showed that the business activity in the construction sector expanded at a weaker rate than expected with the headline dropping to 50.6 in January from 52.8 in December, reminding investors of the economic slowdown in the UK ahead of this Thursday's critical BoE meeting.

On the other hand, the US Dollar Index extended its rebound into the third day and erased all of the losses it suffered last Wednesday amid the FOMC's dovish tone in its monetary policy statement and Chairman Powell's cautious remarks. Although there were no apparent fundamental drivers behind the USD's performance today, the currency was able to take advantage of the rising T-bond yields. As we approach the end of the day, the DXY is up 0.25% on the day at 95.85.

On Brexit-related headlines, the EU's Chief Brexit Negotiator, Michel Barnier today reiterated, via Twitter, that the Withdrawal Agreement wouldn't be reopened while adding that the EU was ready to work on alternative solutions during the transition period. Moreover, Irish foreign minister, Simon Coveney, said that none of the alternative arrangements for the backstop was able to stand up to scrutiny.

Technical levels to watch for

The pair faces the first support at 1.3030 (daily low) ahead of 1.3000 (psychological level) and 1.2955 (200-DMA). On the upside, resistances are located at 1.3100 (daily high/psychological level), 1.3160 (Jan. 31 high) and 1.3215 (Jan. 25 high).

Author

Eren Sengezer

FXStreet

As an economist at heart, Eren Sengezer specializes in the assessment of the short-term and long-term impacts of macroeconomic data, central bank policies and political developments on financial assets.

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