Pound Japanese Yen (GBP/JPY) Exchange Rate Rebounds After Upbeat UK Construction PMI

February 4, 2020 – Written by John Cameron

Pound Sterling Japanese Yen (GBP/JPY) Exchange Rate Recovers on Tuesday

The Pound Sterling Japanese Yen (GBP/JPY) exchange rate rallied, rising by around 0.8%, leaving the pairing trading by around ¥142.3290.

The pairing rebounded on Tuesday after fears the UK would struggle to secure a post-Brexit deal with the EU sent Sterling lower.

Prime Minister Boris Johnson called for a Canada-style agreement between the UK and EU, which rattled markets.

Commenting on this, Jane Foley, Rabobank’s senior currency strategist said:

‘The market is a little bit spooked by the distance that remains [between the EU and Britain] and the concern that there may be very little potentially compromise done in a relatively short space of time.

‘Now the market’s focus has been drawn to the fact that there could still be very little put in place by way a trade deal if these talks don’t go well.’

However, this recovered on Tuesday and the Pound received a boost from better than expected construction data.

Safe-Haven Japanese Yen (JPY) Falls as Coronavirus Fears Ease

The safe-haven Japanese Yen slumped against the Pound on Tuesday afternoon as investors risk appetite rose.

The death toll rose to 425 on Tuesday while the number of confirmed cases in China rose to 20,000.

The second death outside China was reported today, in Hong Kong, although the World Health Organization (WHO) said it does not yet count as a ‘pandemic’.

Added to this, fears about the spread of the Wuhan coronavirus faded as the number of new reported infections is declining.

Commenting on this, Commerzbank FX strategist, Ulrich Leuchtmann noted:

‘The speed at which these new infections are increasing is slowing down, which is something that at least shows we are in a situation where this is… not something like a global catastrophic event.

‘It’s a very early stage to assess how far this will go. Therefore certainly there is a lot of disagreement in the market at the moment on how to interpret these numbers.’

Rebounding Construction Optimism Buoys Sterling (GBP)

The Pound rose against the Japanese Yen after Tuesday’s construction PMI data showed the sector contracted at the slowest pace since May 2019.

Added to this, GBP was buoyed by business optimism, which rebounded in January to the highest level since April 2018.

Commenting on this morning’s data, Duncan Brock, Group Director at the Chartered Institute of Procurement & Supply said:

‘With the strongest optimism since April 2018, construction firms were more upbeat in January as the downturn in business activity slowed, the trend improved for new work and job losses steadied to August 2019 levels, all signalling a moderation in the sector’s contraction.

‘So, though this rebound is a welcome sign, as with all sudden improvements, the danger remains the sector could easily recoil and shrink again. The domestic political situation and the UK’s attempt to find its place in the world remains littered with obstacles so businesses could find themselves on this see-saw of good and bad news for some time yet.’

Pound Japanese Yen Outlook: Services PMI Data in Focus

Looking ahead to Wednesday, the Japanese Yen (JPY) could slump against the Pound (GBP) following the release of Jibun Bank’s services PMI.

If Japan’s services sector does not expand by as much as forecast, Yen sentiment will slide.

Meanwhile, Sterling could continue to rise against the Yen following the release of the UK services PMI.

If the country’s largest sector accelerates, expanding by a faster than expected pace in January, the Pound Japanese Yen (GBP/JPY) exchange rate will rise.



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