Pound expected to slide against USD in May: JPMorgan

May 02, 2024 (MLN): The pound is set to extend its slide against the US dollar this month, according to JPMorgan Chase & Co, which cites the currency’s tendency of weakening in May, as Bloomberg reported.

Sterling has posted losses during May in 12 out of the past 15 years, Bloomberg data shows.

Strategists led by Meera Chandan have taken up a short position, betting the statistical pattern is likely to play out again this month.

They forecast the pound will end the second quarter at $1.22 from around $1.25 currently.

The call also seeks to profit from the currency’s outperformance this year, which is largely down to the higher interest rates on offer in the UK compared with the euro-area or Switzerland.

That may start to work against it though, Chandan says, especially given the potential for further strength in the greenback.

“Should the US dollar rally extend, heavily positioned currencies like the pound are more vulnerable,” said Chandan, adding that investors appear overweight from JPMorgan’s viewpoint. “Sterling seasonality turns strongly negative in May and the pound is overshooting fair value on a range of crosses.”

Sterling has fallen around 2% since the start of the year, compared with an 8% slump for the Swedish krona and a 6% drop for the New Zealand dollar, currencies that are considered to be particularly sensitive to risk sentiment.

The losses are all part of a broader appreciation in the US dollar this year, which has gained on expectations the Federal Reserve will hold interest rates high for longer, given the economy is running at a healthy clip and inflation remains above target.

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