Despite facing significant resistance due to excessively optimistic GBP positioning, GBP is poised to benefit from favourable seasonal patterns. April has historically been the strongest month for the GBP against the USD, with GBP/USD typically experiencing an average increase of 1.2% over the past two decades. One explanation for this recurring trend is the surge in capital inflows into the UK driven by dividend payments to British shareholders from foreign companies and other investment inflows marking the commencement of the UK financial year.
Despite being largely overlooked by the markets, the latest GfK survey revealed a third consecutive month of improvement in German consumer sentiment, albeit from a subdued base. This marks the highest reading since the beginning of the year, reflecting slight upticks in income expectations and economic outlook. However, the willingness to make purchases remained largely unchanged, persisting at near two-year lows. The gradual and sluggish recovery of consumer sentiment suggests that a sustained rebound in the German economy will be a prolonged process. The IMF projects Germany's growth to reach only 0.5% in 2024, nearly half the pace of the Eurozone bloc.
EUR/USD struggled to breach the resistance level of the 200-day simple moving average at $1.0836, remaining within a short-term downtrend channel. In the immediate future, any further decline is expected to find support around the March lows of $1.0800. Investors are awaiting Eurozone economic sentiment and consumer inflation expectations reports later today, though neither is anticipated to significantly impact the market given the overnight option premium remains below its long-term average. Current indications suggest no significant increase in FX volatility, with EUR/USD 1-month realized volatility maintaining near 26-month lows.
USD/JPY has surged by more than 7% in the current quarter, establishing the yen as the weakest performer among major currencies thus far in the year. Despite the Bank of Japan's first interest rate hike since 2007, market sentiment suggests that the next rate increase may be postponed, leaving intervention by Japanese authorities as the primary means to curb the yen's decline. Japan's finance minister has issued his most forceful warning yet regarding yen depreciation as USD/JPY approaches levels that prompted official foreign exchange intervention over a year ago, resulting in a 4% rally in the yen against its major counterparts in a single day.
