Three reasons for GBP strength in April
1. Pent up savings
The UK ended its stay at home order last week. With 50% of the adult population now being vaccinated, COVID-19 infections falling, and expectations of more easing of COVID-19 containment measures the stage is set for some of the pent up savings to be spent. Deutsche bank estimate that they are at around £160 billion which around 12% of the the UK’s GDP output in pent up savings.
Remember the return of the consumer is expected across all major developed countries and is not unique to the UK.
2. A more upbeat Bank of England
The latest Bank of England minutes were more upbeat. There was no obvious concerns about the rise in gilts. The BoE did not follow the RBA and the ECB by speeding up the pace of purchases. They were more like the Fed and content to see rising yields as a reflection of better market conditions. There was no talk of negative interest rates and although the £ did not rally strongly out of March’s meeting (unlike Feb’s BoE meeting) the next logical move for the BoE is tapering of bond purchases and expectations of rising interest rates. Interest rate hikes may still be a long way off with some economists seeing no change until 2026.
3. Strong seasonals for the GBP
The GBP tends to have a very good April. This is reflected over the last 15 years with gains in 12 of the last 15 years during the month of April for cable. Take a look at the stats here. These come courtesy of the team at Seasonax.