By Ritvik Carvalho
LONDON (Reuters) – Britain’s pound has returned to a trend not seen for the past two years: a spring bounce in April.
For at least two decades, the pound has typically risen smartly versus the dollar in that month as a new UK tax year kicks off and corporate dividend repatriation flows drive demand for it from Britain’s many dollar-earning companies.
Since 2010, the pound has risen against the dollar in April https://fingfx.thomsonreuters.com/gfx/editorcharts/nmopanlqeva/index.html every year but 2018 against the backdrop of Brexit uncertainty, while it ended the month flat last year. In the previous decade, it posted April declines only in 2000 and 2004. (Graphic: Sterling’s springtime shine png, https://fingfx.thomsonreuters.com/gfx/editorcharts/jznvnekldpl/eikon.png)
Last month, sterling gained 1.4% against the dollar as global markets returned to relative calm and policymakers injected trillions of dollars in stimulus to combat the coronavirus pandemic.
The bounce could be short-lived, however.
Speculators have turned net short – or negative – against the pound for the first time since December. May often tends to favour the , said Viraj Patel, global FX and macro strategist at Arkera.
“Given that the pound has been one of the outperformers in April, it is one of the most at risk of a sharper reversal (in May),” Patel said.
Indeed, every May since 2010, sterling has fallen, losing an average of 2.3% versus the dollar. It started the month on Friday with a 0.6% decline.
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