The pound has made a bad start to the new month. Only the Canadian dollar has underperformed against the pound so far in April, which is normally a strong month for pound performance, as economists at MUFG Bank note.
Some respite after sharp GBP rally
“Cable has risen on average by 1.5% in April over the last twenty years.”
“Recent weakness marks an abrupt reversal for the pound following on from its strong performance in Q1 when it was one of the best performing G10 currencies (+0.8% vs USD & +5.0% vs EUR) and second only to the Canadian dollar. At the same time, the euro has rebounded more broadly as well which has triggered a painful squeeze for short EUR/GBP positions.”
“The latest IMM report revealed that Leveraged Funds had built up implied short EUR/GBP positioning in March to the highest level since April of last year. The forced unwinding of those positions has likely exacerbated the size of the move higher in EUR/GBP in recent days from an intra-day low of 0.8472 on Monday to an intra-day high yesterday of 0.8664. It has been the largest rise for the pair in percentage terms since the down trend began in mid-December.”
“The price action suggests that risks are becoming more balanced after the sharp move lower in Q1 which brought EUR/GBP back towards pre-pandemic lows between 0.8400 and 0.8600.”