The Pound exchange rate against the USD still has not moved much into European trading session Tuesday (5/5) after posting a 2-day losing streak. The weakening streak is making the Pound haunted again by the phenomenon of 'Sell in May'.
Sell in May means the Pound is always experiencing selling action and recorded poor performance throughout May. At 14:30 WIB, the Pound was trading at USD1,2445, edging up 0.03% on the spot market. While in two trading days in May, the Pound weakened 0.71% and 0.42%.
The Pound exchange rate also weakened against the rupiah. At 18:05 WIB, GBP 1 was equivalent to IDR18,656, It weakened 0.37% on the spot market. The sell in May phenomenon actually refers to the Pound exchange rate against the United States dollar (US), but the rupiah also gets its effects.
GBP / USD Has Always Weakened in May For The Last Decade
In the past 10 years, the Pound exchange rate has always weakened against the US dollar in May. It is still unclear what caused this phenomenon, but the data shows that in the 2010-2019 period the Pound always weakened in May.
"May is one of the worst for Pounds. If you look at the past few years, May is the worst month after November for the Pound, so I don't think we are too optimistic about predicting the Pound will strengthen," said Kenneth Broux, forex strategist at Societe Generale.
The biggest weakness occurred in May 2012 when the currency of the State of Queen Elizabeth was down 5.1%. While the smallest weakening occurred in May 2015 of 0.4%. From the fundamental side, the Pound is still pressured due to the uncertainty of easing quarantine (lockdown).
Prime Minister, Boris Johnson, will review the policy this week. Last Monday (27/4), when giving his first speech after undergoing treatment due to the coronavirus, PM Johnson said it was still too early to stop lockdown. The risk of a second wave would be quite large if it were done.
Market participants also began to be pessimistic about the long-term outlook of the Pound. In six consecutive weeks, the bullish position (strengthening trend) market participants continue to decrease until it finally turns to bearish (weakening trend) in the last two weeks.
Most of the market participants predict Pounds will weaken. Since December last year, It is the first bearish position. Although Britain will succeed in stopping the Covid-19 pandemic, in the long run, the Pound will still be burdened by the Brexit process (which is currently being forgotten).
Pound’s Having a Hard Movement Amid Brexit Uncertainty
The Pound, in general, remained unchanged against the dollar in the previous trading session. But the Pound is expected to change in a strong performance in the coming months. The Pound will face many obstacles such as uncertainty related to Brexit amid signs of little progress on UK-EU trade talks.
According to Foreign Minister of Ireland, Simon Coveney, unless there was significant progress in negotiations, Britain and the European might head towards a collision at the Brexit talks. Concerns mounted that Britain still could leave the EU even there is no trade agreement.
Beyond the transition period, Britain has insisted that they will not extend the negotiations, which ends on December 31. Britain and the EU do not have much time to agree to extend trade talks after the end of the year, only until the end of June.
The driving factor for this week came a few days before the Bank of England policy meeting on Thursday, although the meeting might not have had a significant impact. Bank of America estimates that GBP/USD will trade at a lower level. in the range of USD 1.22 to USD 1.26.
