Credit Agricole explains:GBP lost ground across the board at the start of May, and the latest price action is seemingly confirming the well-established negative seasonal effect associated with that month. Indeed, the GBP lost ground in May vs the USD in 17 of the last 20 years whereas it underperformed the EUR over the same period in the last four years. We further think that any GBP underperformance in coming weeks would be in sympathy with deteriorating risk sentiment (e.g. the 'sell in May and go away' type of price action).
More recently, we also suspect that corporate flows around the anticipated merger between the UK operations of Telefonica and Liberty may have had an impact on the currency. In particular, recent media reports have suggested that the former could use the proceeds of the deal to cover some of its outstanding liabilities, whereas the latter may have to boost its participation via a cash injection. The transaction could generate EUR-positive and USD and GBP negative flows. Market positioning ahead of the transaction thus may have contributed to the latest EUR/GBP outperformance. Tags: Analysis Bank Orders Fundamental Analysis