GBP to JPY Exchange Rate Trending Near 6-Month-Best amid Risk-Sentiment

December 2, 2019 – Written by Tim Boyer

Despite the latest signs that Britain could still be headed for a hung Parliament at next week’s 2019 UK General Election, the British Pound to Japanese Yen (GBP/JPY) exchange rate was able to hold its ground relatively closely to its best levels for most of today. While the Pound was being pressured by UK political uncertainty, the safe haven Japanese Yen was sliding amid the latest hopes that the global trade outlook was improving.

Following last week’s solid GBP/JPY gains of over two Yen, from 139.40 to 141.58, GBP/JPY has largely been able to hold onto those gains.

Trending close to last week’s best level since May, 141.81, GBP/JPY has avoided notable losses this week so far.

Even as investors sold the Pound, GBP/JPY has been able to hold its ground due to the Yen’s own weakness. At the time of writing on Monday afternoon, GBP/JPY was trending close to the level of 141.60 – just above the week’s opening levels.

GBP Exchange Rates Struggle to Hold Ground as UK Election Polling Continues to Narrow

For most of last week, investors piled into the Pound. It came in reaction to a poll showing that Britain’s ruling Conservative Party was on track to winning a comfortable majority in the upcoming UK General Election.

If the Conservative Party wins the election, analysts believe it will make a relatively soft Brexit outcome more likely. Hopes for a soft Brexit combined with higher confidence that a no-deal Brexit was becoming less likely bolstered demand for the Pound.

However, over the weekend multiple fresh UK election polls showed that the opposition Labour Party was continuing to gain on the Conservatives, narrowing the polling gap.

An Opinium poll said that the gap narrowed to 15 points, while a YouGov poll showed a 9 point gap, and a BMG poll showing only 6 points difference between the two major parties.

At least two polls now show that the Conservative Party’s lead has shrunk into the single digits.

According to Jeremy Stretch, Currency Analyst at CIBC:

‘There are increasing parallels with the way polls played out in 2017 with what we’re seeing now, so that could cap the upside for Sterling,’

In terms of UK data, today also saw the publication of Britain’s final November manufacturing PMI. The data beat projections, but still printed a contraction and ultimately didn’t influence the Pound’s movement in any notable way.

JPY Exchange Rates near Worst Levels as Data Bolsters Risk-Sentiment

The Japanese Yen is a safe haven currency that is appealing in times of market uncertainty, but it has been unable to benefit notably from the recent uncertainty in US-China trade relations.

In recent weeks, speculation has risen that relations between the US and China are worsening again.

Typically, this would bolster demand for safe havens. However, recent weeks have also seen high speculation that the US and China are still getting closer to reaching a ‘phase one’ trade deal, which is keeping investors hopeful.

As a result, the US Dollar is benefitting more from safe haven demand than the Yen.

On top of this, market trade and risk-sentiment has risen today in reaction to a few surprising ecostats published in the Asian session.

Surprisingly strong New Zealand trade data and Chinese manufacturing stats boosted hopes that global trade and growth were recovering following months of slowdown. Jeremy Stretch from CIBC said:

‘The fact that not only the Chinese PMI is better than expected but the underlying numbers are also encouraging plays into the narrative of other forward-looking numbers we’ve seen globally,

This gives reason for cautious optimism, even though we wait to see what happens on phase 1 of the trade US/China trade talks’’

GBP/JPY Exchange Rate Forecast: UK Election Polling and Risk-Sentiment Remains the Focus

While some fairly notable UK and Japanese ecostats will be published in the coming days, Pound to Japanese Yen exchange rate investors may continue to largely overlook upcoming stats in favour of political and trade developments.

Pound investors will continue to closely watch UK election polling. If the opposition Labour Party continues to narrow the gap, the Pound could see continued weakness. Stronger polls for the Conservative Party would have the opposite effect.

The Japanese Yen, on the other hand, will be driven by shifts in global risk-sentiment. If there are optimistic US-China trade developments or strong trade reports, risk-sentiment could rise and the safe haven Japanese Yen will weaken further.

If there is no notable shift in risk-sentiment, the Pound to Japanese Yen exchange rate could still be influenced by Wednesday’s Japanese services and composite PMI stats from Jibun.

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TAGS: Pound Yen Forecasts