In view of the analysts at HSBC, fans of seasonal patterns will point to GBP's tendency to appreciate during the month of April.

Key Quotes

“We are not fans. We retain our view that the best tactical strategy for GBP is to sell it on rallies, reflecting a likely intensification of political risk, the structural headwind of the current account deficit and possible signs of softness in the economic cycle. We have come back close to where we started on our open trade recommendation to sell GBP-USD at 1.2540, but we still believe the trade retains merit. Those not already engaged in GBP may be tempted to wait for better levels to sell, somewhere in the1.2700-1.2850 region where it last topped out.”

“The reality of Brexit is now under way. Although well-flagged in terms of timing, the market now faces the uncertainty of how the negotiations will evolve. We believe the balance of risks early in the negotiations is for hard Brexit to look more likely. The EU has already suggested it is in no rush to begin negotiations, a possible tactic given the fixed timeframe under which the U.K. has to find an agreement. If this were a divorce, the initial salvos would likely be acrimonious with attendant GBP downside.”

“We also believe the boost given to GBP from the hawkish shift in rate expectations is vulnerable to a reversal. The dissenting vote of Forbes at the last MPC meeting came against a run of upside activity data surprises in January and February. Those have now petered out in March with the activity surprise index tracking sideways. For example, the PMIs have been softer, and retail sales are lower 3M/3M despite the pop higher in February. The upside surprise on inflation gave an extra boost to hawks and GBP bulls, but we think it was misplaced. The rise in inflation is a dovish signal under current circumstances because of the squeeze it poses on real spending power. Wages growth is stuck; inflation is not.”

“Thus we think the extra 18bp of tightening the market has added to its expectations for December 2018 are likely to reverse as the data and BOE rhetoric delivers a push back. This will be significant for GBP-USD as the currency has traded as a cyclical currency so far in 2017, tracking the daily vagaries of the interest rate differential between the UK and US. Once the political risk of an early Brexit negotiation standoff and the structural headwind from the current account deficit are added, we could have all three drivers pointing to GBP weakness.”

“One quirk is that our call for GBP weakness in April goes against the historical pattern. For the last 12 years without fail, GBP has rallied against the USD with an average monthly gain of 2.2%. We cannot think of a good fundamental reason for this pattern so are reluctant to rely upon it, not least because the UK is a very different place in April 2017 than it was in previous Aprils. The vote for Brexit was a game-changer.”

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.

If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.

FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.

The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.

Feed news Join Telegram

Recommended content


Recommended content

Editors’ Picks

AUD/USD struggling to retain the 0.6900 mark

AUD/USD struggling to retain the 0.6900 mark

Wall Street plunged on Tuesday, dragging AUD/USD lower as the greenback benefited from the risk-averse sentiment. Softening gold prices weighed further on the aussie, now approaching its June lows. Australian Retail Sales in the docket.

AUD/USD News

EUR/USD nears 1.0500 amid inflation and recession concerns

EUR/USD nears 1.0500 amid inflation and recession concerns

The EUR/USD pair bounced modestly from a Tuesday’s low of 1.0502, maintaining a near-term bearish bias amid concerns related to economic growth and central banks’ actions to tame inflation. US core PCE inflation and German CPI coming up next.

EUR/USD News

Gold: Can the dollar finally win the battle?

Gold: Can the dollar finally win the battle?

XAUUSD is technically bearish and could soon lose the $1,800 level. Gold retains the sour tone on Tuesday, now trading at around $1,823.00 a troy ounce. The dollar seesawed between gains and losses, turning higher after the release of discouraging US data.

Gold News

Summertime bull-run a multi-year bear market?

Summertime bull-run a multi-year bear market?

The cryptocurrency market is in a historical pivotal moment. One good trade could replenish all losses, while one bad trade could be catastrophic.

Read more

FXStreet Premium users exceed expectations

FXStreet Premium users exceed expectations

Tap into our 20 years Forex trading experience and get ahead of the markets. Maximize our actionable content, be part of our community, and chat with our experts. Join FXStreet Premium today!

BECOME PREMIUM

Forex MAJORS

Cryptocurrencies

Signatures