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Aug 22 - 10:55 AM

Credit Agricole's Analysis: Is August A Bane for the GBP?

By eFXdata  —  Aug 22 - 09:30 AM

Over the years, August has been historically challenging for the GBP/USD, with data from the past two decades revealing a trend: the GBP/USD typically drops by an average of -1.05% during this month. This phenomenon can be attributed to various factors:

1. Dominant USD Strength:

  • Historical Performance: The USD usually strengthens in August, more so against currencies associated with risk and commodities. The effect, though, is less pronounced against renowned safe-havens like the EUR, JPY, and CHF.

2. GBP's Performance this August:

  • Comparison with G10 currencies: While the GBP has fallen against the USD, it's noteworthy that it has bested all other G10 currencies this month.

3. Why the GBP Resilience?

  • Consistent Positive UK Data: The GBP's relative strength this month, even against the backdrop of a surging USD, can be credited to a stream of positive data from the UK. This consistent positive performance reinforces the Bank of England's hawkish policy stance.
  • Rate Market's Expectations: There's a growing sentiment in the rate markets that the BoE might emerge as the most hawkish central bank among the G10. This sentiment is driven by expectations that the bank will steer the terminal policy rate to a substantial 6% by early 2024.

Conclusion: Despite August's traditional challenges, the GBP is holding its ground this year. The consistent positive data from the UK and the market's faith in the Bank of England's policy direction are significant contributors to the currency's resilience.

Source:
Crédit Agricole Research/Market Commentary

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