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April Boosts GBP/USD Historically, High Risk-Reward This Month

Sterling eyes April gains with historical 1.4% rise, amid BOE's dovish stance and economic challenges.

By Bill Bullington

4/4, 05:51 EDT
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Key Takeaway

  • April historically boosts GBP/USD, with an average 1.4% rise in 29 of the last 44 years, suggesting high risk-reward this month.
  • Fundamental and technical factors support GBP, despite a ~2.5% drop from March highs and speculators' net long positions.
  • BOE's dovish stance and UK's economic challenges may pressure GBP, contrasting with other economies' central bank policies.

Sterling's Seasonal Strength

April has historically been a favorable month for the British Pound (GBP), with data showing a consistent positive trend for the currency against the US dollar (USD). Analysis reveals that in 29 of the last 44 years since 1980, April has seen an average increase of 1.4% in GBP value, with the positive returns averaging at 3.6%. This trend has been even more pronounced in the recent period from 2000, with GBP/USD rising in 19 of the 24 years. The seasonal strength in April is attributed to fiscal year-end and repatriation flows, particularly noticeable in weeks 15 and 16 of the year, which in 2024 begin on April 8. This pattern suggests a higher than average risk-reward for GBP/USD to end the month on a positive note.

Fundamental and Technical Support

The British Pound is currently receiving support from both fundamental and technical factors. Real-rate differentials are acting as a tailwind for the currency, while from a technical perspective, GBP/USD is considered to be on the weaker side after a ~2.5% sell-off from its March highs. This positions the currency far from being overbought, edging instead into oversold territory. However, it's noted that speculators' positioning is already quite net long, indicating that there may not be a significant short covering to further boost prices. Despite this, the limited drawdown has prevented traders from exiting their positions.

Economic Indicators and Central Bank Policies

The Bank of England's (BOE) recent dovish stance, highlighted by the alignment of previously hawkish members with the broader committee to keep rates on hold, has introduced vulnerability to the pound. The central bank's focus on inflation and the impact of high interest rates on living standards, coupled with the anticipation of a rate cut potentially as early as June, has put downward pressure on GBP. The UK's economic indicators, including a drop in job vacancies to a three-year low and a technical recession, contrast with other economies like Canada, affecting GBP's valuation. The comparative analysis of central bank policies, especially between the BOE and the Federal Reserve, is crucial for understanding the potential direction of GBP.

Street Views

  • Simon White, Bloomberg (Bullish on GBP/USD):

    "Out of all major FX, bonds and equities, sterling has one of the most skewed seasonals, with April consistently and materially a positive month for the currency... The risk-reward for GBP/USD ending this month higher is above average."