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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.”