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GBPUSD forex forecast for 05.05.2020

May 5, 2020

May 5, 2020

Pound is not lucky in MayDmitri Demidenko

Seasonal sell-offs are just one bear driver for the GBP/USD among

many

The best monthly rally of the US stocks over the past 33 years has become the further evidence that the pound is subject to seasonal regularities. Amid the beginning of the new fiscal year and the capitals repatriation to the UK in April, the sterling was traditionally quite strong, over the past decade, the [GBP/USD][1] closed in the red area in April only in 2018. Since 2000, the pair was down only twice, in 2000 and 2004. The pound’s trend usually changes in May. The GBP on average lost 2.3% in May in 2010-2019, it lost more than 3%.

Dynamics of pound moves in May

![LiteForex: GBPUSD forex forecast for 05.05.2020][2]

Source: Bloomberg

In April, the S&P 500 featured a quick rebound, being down rather deep in March, and the sterling became more responsive to changes in the global risk appetite, so, the Brexit matters, horrible domestic data or the expectations of a greater monetary stimulus by the BoE didn’t affect the pound’s bull market. In May, those bear factors for the [GBP/USD][1] gain back the relevance. London demands full control over the coastal waters and doesn’t want to accept the EU rules in the sphere of environmental and labor law and government assistance. Brussels says the Brexit talks have stalled. The UK demands sovereignty and isn’t willing to extend the transition period, which may result in new import tariffs in 2021 and hit the UK economy that is already weak.

Boris Johnson’s government is likely to boost the size of the fiscal stimulus, and the Bank of England will have to boost the QE pace to cover the increasing volume of the government bonds issuance. In March, the central bank announced the launch of the QE program of £200 billion and has bought bonds worth £70 since then. With the former asset purchasing pace, the BoE may end the QE in June. Unless it increases the purchase volume now, or, at least hints at such a step in the future, investors will escape from the UK bond market, which will push up the bond yields. An increase in the borrowing costs will delay the GDP recovery. Andrew Bailey and his colleague will have to boost the asset- buying program by at least another £200, and the expectations for the BoE monetary expansion press the pound down.

Besides, the growing risk of the US-China trade war escalation weigh on the US stocks and increases the demand for the dollar as a safe-haven. Geopolitics, lower risk appetite, unsettled Brexit matters, and the expectations for the BoE’s monetary easing, as well as the seasonal factor, encourage speculators to increase net shorts on the pound to the highest levels since December.

Dynamics of speculative net positions on GBP

![LiteForex: GBPUSD forex forecast for 05.05.2020][3]

Source: Reuters.

In my opinion, the [GBP/USD][1] bulls were going ahead despite the sterling’s flaws amid the substantial rally of the US stock indexes. In April, the GBP has lost the support of the US stocks, which reminds investors about Brexit and BoE’s monetary expansion. Therefore, if the pound breaks out the supports at $1.235 and $1.229, it will be relevant to sell the pound versus the US dollar.

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Price chart of GBPUSD in real time mode

![Pound is not lucky in May][6]

The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteForex. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.

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