Pound Forecasts Month Ahead: GBP Could Suffer Against EUR and USD as Seasonal Headwinds Pick Up Strength

Will the British pound (GBP) succumb to historical trends and head lower against the euro and dollar as it usually does every November?

The precedent for sterling weakness in the month of November has been noted by a number of analysts we follow.

The seasonal effect is consistent - GBPUSD has weakened 70% of the time in the month of November in the last 20 years.

We make this observation as we watch sterling carve out a base against the dollar and settle into a new range against the euro. Will these be the best rates for some time to come for sterling sellers?

A look at the markets at the current time does however suggest the pound is looking to end November on a positive note against the euro:

• The pound to euro exchange rate (GBP/EUR) is currently quoted at 1.2762.
• The pound to dollar exchange rate (GBP/USD) is quoted at 1.5993.

Beware: If you are looking for a higher rate make sure your currency specialist has placed the relevant stop-loss and buy orders in place to ensure you get the right rate when it is hit, find out how here.
Also Note, all the above levels are from the inter-bank markets - your bank will affix a spread at their discretion when passing on a retail rate. However, an independent provider will seek to undercut your bank, thereby delivering up to 5% more FX in some instances. Please find out more.

Naughty November Could Give GBP a Headache

ANZ Research are looking to take advantage of GBP's traditional poor-form in November and suggested profiting from declines:

"For the month of November in the 2000 - 2013 period, among the G10 currencies, GBP has shown the highest tendency to depreciate against the USD.

"The currency has fallen in 10 out of the last 14 years during November. However, the average percent spot loss is not large at 0.5%."

ANZ advises investors looking for the strongest seasonal pattern in November to consider pairing GBP with CHF (selling GBP/CHF).

This is interesting in that CHF correlates strongly with the euro, and thus GBP/EUR, as the Swiss central bank defends the CHF exchange rate floor.

"The depreciation in GBP is amplified when paired up against CHF, with this cross falling in 11 out of the last 14 years for an average spot decline of 1.0%," ANZ tells clients.

Interestingly though there is little literature out there to suggest why November is a bad month for GBP - what dynamics are at play? If you have suggestions please contact us and we will share your views.

GBP/USD Set to End October on a Sour Note

The pound has fallen rapidly against the dollar on the foreign exchange markets following the release of the October minutes from the US Fed policy setting committee.

A look at the following market action that came in the wake of the release confirms to us that the technical outlook for GBP for the remainder of October looks poor:

Changes to the FOMC statement leaned in a hawkish direction, a notable divergence from recent market moves that have priced in a later start to the tightening cycle.

The FOMC emphasised that “Labor market conditions improved somewhat further, with solid job gains and a lower unemployment rate.”

While the first half of that sentence was a holdover from the September statement, the second half was new and indicates growing Fed confidence in the labor market.

"Today’s statement changes do not change our view that the FOMC will be raising rates in June 2015 based on our view of continued labor market tightening reflected in a falling unemployment rate. We think today’s statement emphasizes that tightening will proceed based on labor market progress, and external factors are only likely to interfere with that process to the extent that they seem to be slowing the labor market," says Dean Maki at Barclays.