He looked at Fred in January as a way of keeping Dinho fresh for the CL. In January we were competing in 4 competitions and didn't have a ton of depth at DM. Its also a position we would PREFER to upgrade (if you look at all of our positions that is one that is relatively weak--2 players that are great but one is aging and the other is injury prone). Fred was the choice for January because he was technically available (Jorginho wasn't) and he could be a good short term and long tern solution.
As soon as February arrived we started thinking about this summer and shifted to our first choice Jorginho (if he was available we would have gone for him in January). He didn't work out so we will see who else is available.
The think is though, I don't think there is much available RIGHT NOW that is better than Gundogan. He isn't the best in the world at DM but he certainly can do the job in a Pep team IMO. When we identify someone better (like Jorginho) we will try to get him, but my point is we have the ability to be selective because what we have is still damn good.