While the Pound has slumped against many major currencies on Bank of England (BoE) interest rate cut bets this week, the British Pound to Japanese Yen (GBP/JPY) exchange rate has been able to avoid significant losses due to market aversion to safe haven currencies this week. Investors have been hesitant to buy the safe haven Japanese Yen as market sentiment surrounding global geopolitical tensions improves, but the Pound’s strength is limited as well.
Last week’s shifts in risk-sentiment ultimately led to big GBP/JPY gains. GBP/JPY opened the week at the level of 141.32 and the pair spent the week trending higher, ultimately closing the week near the key level of 143.00.
Since markets opened this week, GBP/JPY movement has been mixed. Japanese Yen weakness has made it easier for GBP/JPY to avoid losses, and at the time of writing on Tuesday the pair continues to trend close below the week’s opening levels.
GBP Exchange Rates Struggle for Direction as Bank of England (BoE) Rate Cut Bets Persist
Following last week’s strong performance, the Pound has been much weaker since markets opened yesterday.
Weekend news that Bank of England (BoE) policymakers were taking more dovish stances, combined with yesterday’s weaker than expected UK growth and production results, led to a surge in BoE interest rate cut bets.
Markets went from doubting much BoE action any time soon to around 50% bets of a rate cut as soon as this month. This led to a Pound plunge yesterday.
The British currency was able to avoid losses against the Japanese Yen however, due to the Yen’s own weakness on market risk-on movement.
Sterling’s movement steadied today following yesterday’s slump.
The British currency was a little more appealing in response to today’s news that the UK government would not give Scotland the powers to hold a second Scottish independence referendum.
As this development meant that political uncertainty around Scotland had lightened slightly, the Pound was a little more resilient.
However on top of persisting Bank of England uncertainty, some analysts continue to warn that a 2020 of Brexit uncertainties will remain a limitation to the Pound’s appeal as well.
According to Jane Foley, Head of FX Strategy at Rabobank:
‘There are still a lot of optimists in the market who take the view that reduced political uncertainty will shore up confidence, investment and economic activity in the UK,
We would not count ourselves in this camp.’
All these factors have limited the Pound’s performance today.
JPY Exchange Rates Struggle amid Limited Market Demand for Safe Haven Currencies
The Japanese Yen is a safe haven currency that sees strong demand in times of broad market uncertainty.
Because of this the Yen saw a surge in demand at the beginning of January, in response to US-Iran military tensions. However, this is also why the Japanese Yen has been weaker again since last week.
Last week saw signs that US-Iran tensions would not escalate further. Perceived signs of tensions cooling left investors more willing to return to riskier investments, and safe haven currencies like the Yen were left tumbling.
Amid a lack of market demand for safe haven currencies like the Yen this week, the currency was left without much fresh support.
This week’s Japanese data has been mixed but generally underwhelming so far.
Tuesday’s Asian session saw Japanese current account and eco watcher outlook figures beating forecasts. However, bank lending and eco watcher current conditions figures fell short.
Overall, amid a lack of solid domestic support for the Yen, the safe haven currency remained limp and this made it easier for GBP/JPY to hold near the week’s opening levels.
GBP/JPY Exchange Rate Forecast: Upcoming UK Stats Could Drive Bank of England (BoE) Bets
With the Japanese Yen still lacking support amid market risk-on movement, the currency could be in for further mixed and limp movement in the coming days.
Upcoming Japanese data includes machinery orders tomorrow and Thursday, as well as tertiary index data from November.
However, if any of tomorrow’s comments from Bank of Japan (BoJ)Governor Haruhiko Kuroda surprise investors this could cause some Japanese Yen movement.
Overall though, Pound to Japanese Yen exchange rate investors are likely to focus on upcoming UK data which could cause further Bank of England (BoE) interest rate speculation this week.
Tomorrow will see the publication of Britain’s December inflation rate results, with December retail sales following on Friday.
If these stats disappoint, investors will become more confident in a possible January rate cut from the BoE, and the Pound to Japanese Yen exchange rate will be under more pressure to tumble.
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TAGS: Pound Yen Forecasts