May has only just stated, and it's already looking like a month that the pound would rather forget. In just two trading days, sterling has wiped out all of its gains from April. However, a weak May isn’t that unusual for sterling, it has been GBP/USD’s worst month each year since 2010.
Negative seasonality, coronavirus lockdown and the Brexit deadline fast approaching are headwinds that are giving investors good reason to sell out of the pound
In true May fashion, GBP/USD is trading on the back foot in the European session today, amid increased risk aversion and ahead of a busy week for the pound.
The latest Deloitte CFO survey showed that UK business confidence has fallen to the lowest level since records began in 2007. The survey revealed that 53% of CFOs saw the UK economy in a deep and pro-longed downturn until the end of the year. Revenue isn’t expected to return to pre-coronavirus levels for at least a year.
Pound traders will now look ahead to tomorrow’s service sector PMI, which is expected to show a reading of 12.3, yet another record-breaking eye-watering level as the coronavirus lockdown paralyzed the dominant sector of the UK economy. While some reports of how the British government intends to ease lockdown have been released, however, without more details on the exit strategy, investors could well get very jittery over such weak figures.
BoE on Thursday
Looking further ahead, the Bank of England will announce its monetary policy decision on Thursday. However, it will be doing so at 7 a.m. rather than the usual 12 a.m. The change in timing raises the question whether this is owing to any big policy announcement or to prevent any leaks.
Safe-Haven USD
The US Dollar is bounding higher in risk-off trade as U.S.-China tensions rise. U.S. Secretary of State Mike Pompeo reiterated President Donald Trump’s efforts to pin the blame of coronavirus on China. Fears of a second chapter to the trade war are being stoked after Trump threatened more trade tariffs.
GBP/USD: Levels to watch
GBP/USD is -0.5% as it tests it 50 sma on the 4-hour chart at $1.2430. A meaningful move below this level could see more bears jump in.
Immediate support can be seen at $1.2405 (today’s low) prior to $1.23 low April 24.
Immediate resistance can be seen at $1.2486 (today’s high) prior to $1.2648 (high April 30).
