A relatively constructive close to the week for the Pound with cable trading within close vicinity to the 1.38 handle. The slew of UK data throughout the week has had a somewhat limited impact on price action. Softer CPI is likely to reverse higher in the months ahead, which has been well-documented, strong UK flash PMIs for March was not entirely surprising given the UK’s roadmap to normalization being laid out, while retail sales are also expected to bounce strongly as non-essential retail re-opens. That said, for much of this and for the first half of next week the focus has and will be on month/quarter-end flows for G10 FX.

EUR/GBP RANGE BREAK NEARING

The modest bid in cable has been in part a by-product of some cross-related EUR/GBP selling with the 0.8540-0.8640 remaining well respected. In turn, with the cross yet again rejecting the range top, to trade at range lows, the focus will be on whether we can finally see a clean break next week. The fundamentals continue to signal that EUR/GBP remains tilted to the downside with Europe heading towards a third Covid wave with most of the region extending restrictive measures, while the UK have set the roadmap for normalization.

EUR/GBP Chart: Daily Time Frame

Source: Refinitiv

Although I must admit until yesterday, I had been cautious on expecting further downside in recent weeks, given that the cross had been in oversold territory, while the RSI had also posted a bullish divergence. However, with the RSI failing at 50 and the now out of oversold conditions, there is more room to expect near-term direction, alongside this we are also heading towards a seasonally strong month for GBP as seen below.

GBP/USD SEASONALITY SIGNALS STRONG APRIL AHEAD

GBP/JPY UPSIDE RISKS AMID MONTH/QUARTER-END FLOWS

Another GBP cross that tends to peak my interest around this time of the month is GBP/JPY, which typically performs pretty well on the final day of the trading month (particularly ahead of the 4 pm London fix) as the table below shows. With that in mind, the Japanese FY end may also provide a tailwind to exacerbate the move higher, which has been notable as we close out the week.