Investing.com — Bank of America analysts are recommending hedging GBP exposure despite April’s positive performance for the currency, citing historically weak May seasonality and underpriced political uncertainty.
April marked another positive month for GBP, supported by stronger economic data, widening rate differentials, and an improving risk backdrop. UK data printed strong positive surprises over the past month, driving rate spreads in favor of higher GBP.
The April strength also reflected the well-known seasonal pattern of UK-listed companies repatriating overseas revenues to pay GBP dividends.
However, May historically shows the opposite pattern, with GBP typically underperforming against G10 currencies. The bank’s analysis shows May performance appears as a mirror image of April’s gains, with the return of a risk-off backdrop to markets supported by seasonal increases in the VIX.
With May local elections scheduled for next week, BofA analysts believe political uncertainty remains underpriced. Both and 3-month volatility are anchored toward the bottom end of their respective ranges on a 1-year lookback.
From a technical perspective, GBP/USD is showing bearish signals after failing to break above Fibonacci resistance.
The 50-day simple moving average is starting to cross below the 200-day simple moving average, a bearish trend signal. May seasonal tendencies show GBP/USD was the weakest G10 pair, down 69% of the time on average by 0.57%.
While 1.36 resistance holds, the bank favors lower GBP/USD through May, with next support at 1.3414 and 1.3381.
