Monthly seasonality of GBPEUR

The euro was introduced as an accounting currency on 1 January 1999, replacing the former European Currency Unit (ECU) at a ratio of 1:1. On 1 January 2002, physical euro coins and banknotes entered into circulation.

The following chart plots the GBPEUR exchange rate from 1975. (NB. The GBPEUR rate has been back-calculated to 1975.)

GB sterling-Euro (GBPEUR) rate [1975-2014] 2The month closing high for the rate was 1.9234 in January 1981; and the month closing low was 1.0341 in December 2008.

Monthly seasonality

The following charts look at the monthly fluctuations in GBPEUR.

The chart below shows the average monthly returns for GBPEUR for the period 1975-2014. For example, on average the rate has risen 0.80% in January.

GBPEUR monthly average return [1975-2014]From the above chart it can be seen that since 1975 the strongest month for GBPEUR has been January, followed by April and July. Whereas the weakest month has been September (-1.05%), followed by February and December.

To see if there has been any change to this monthly seasonality since 1999 (i.e. since the euro was introduced as an accounting currency), the following chart plots the average monthly rate changes in GBPEUR for the period 1999-2014.

GBPEUR monthly average return [1999-2014]For this shorter period, it can be seen that January (+1.20%) is still the strongest month followed by, still, April and July (although April has been stronger and July weaker since 1999). On the other side, December (-1.25%) has become the weakest month (September has had close to a zero average change since 1999), with the other week months being November and February.

The following chart plots the proportion of positive returns for GBPEUR for each of the 12 months.

GBPEUR monthly positive return [1999-2014]The observations here largely correlate with those for the average changes. Namely, since 1999-

  • The two strongest months for GBPEUR have been: January and April,
  • The three weakest months for GBP have been: February, November, December.
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Monthly seasonality of GBPUSD

For a while after World War II nobody needed to worry about currency fluctuations because currencies were tied to the US dollar under the Bretton Woods system. Exchange controls were in place and some older readers may remember being restricted to taking no more than £50 out of the UK.

But on 15 August 1971 President Nixon announced that the US was ending the convertibility of the US dollar to gold and this led to the end of the Bretton Woods system and fixed-rate currencies – such as sterling – became free-floating.

The following chart shows the fluctuations of GBPUSD since it became free-floating in 1971.

GB sterling/US dollar (GBPUSD) rate [1971-2014]

As can be seen, in the decade following 1971 sterling fell against the dollar (almost reaching parity in February 1985); but since then has been broadly trading in the range 1.4-2.0.

Monthly seasonality

The following charts show the monthly changes in GBPUSD for the last 20 years.

The chart below shows the average monthly returns for GBPUSD. For example, on average the rate has fallen 0.39% in January.

GBPUSD month returns average [1993-2014]The chart below shows the proportion of monthly returns that were positive. For example, GBPUSD has risen in January in 46% of years since 1993.

GBPUSD month returns positive [1993-2014]Observations:

  1. Weak months for GBPUSD have been: February, May, August and November
  2. Strong months for GBPUSD have been: April, September and October

These observations would seem to have some persistency as they are valid for other periods analysed: 1971-2014 and 2000-2014.

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Correlation between GBPUSD and UK equities

Do changes in the exchange rate affect UK equities?

The following chart plots the monthly returns of the sterling/US dollar (GBPUSD) exchange rate against the FTSE 100 Index for the period 1971-2012.

As can be seen there is very little correlation. Changes in GBPUSD have no consistent influence on the FTSE 100 Index on a monthly basis.This is not period-dependent, a chart for the more recent period 2000-2012 is little different.

The following chart is similar, except instead of the FTSE 100 it plots the FTSE 250 Index against GBPUSD (this time for the period 1985-2012).

Again, as with the FTSE 100 Index, there is negligible correlation.

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