January 29, 2021 – Written by David Woodsmith
While safe haven demand has been rising on market uncertainty in recent sessions, this did not stop the British Pound to Japanese Yen (GBP/JPY) exchange rate from jumping to its best levels in almost a year. While the Yen is typically more correlated with market sentiment than domestic news, a slew of negative Japanese data combined with some US Dollar (USD) strength left the Yen unappealing.
After opening this week at the level of 142.00, GBP/JPY briefly dipped lower but has since been spending the week trending higher and higher.
Due to a combination of the Pound’s surprising resilience in recent weeks, and strength in the Yen’s rival the US Dollar, GBP/JPY touched on a new 11-month-best of 143.38. This was the best level for the pair since February 2020, and with February 2021 right around the corner it shows that GBP/JPY may have recovered the past year’s losses.
At the time of writing on Friday, GBP/JPY is trending a little lower in the region of 143.21.
Pound Sterling (GBP) Exchange Rates Continue to Benefit from Vaccine Hopes
Despite a lack of fresh news to support the Pound outlook in recent sessions, the Pound has been one of this week’s more appealing major currencies. Investors have been buying the British currency largely due to vaccination hopes.
As coronavirus cases surge in major economies across the world, investors are less optimistic about vaccination rollout than they had been a week or so ago. This has caused fresh demand for safe havens.
Despite this though, the Pound continues to climb. As Britain’s own vaccination schemes are more advanced than those of other major economies, investors continue to bet optimistically on Britain’s recovery outlook and the Pound.
Some analysts are cautious about the Pound’s gains. You-Na Park-Heger, FX Strategist at Commerzbank, believed markets were too optimistic about the currency. She said:
‘We consider Sterling optimism to be excessive and we see the risk of disappointed expectations,
The markets are clearly ignoring that the current infection situation in the UK is still very tense,’
These factors didn’t stop the Pound from being one of the week’s best-performing major currencies, but downside pressure could mean this current strength is limited.
Japanese Yen (JPY) Exchange Rates Struggle as Japanese Data Fails to Impress
While the Japanese Yen is a currency often correlated to market demand for safe havens, it has been unable to benefit much from this week’s risk-off movement. At least, against the Pound.
The Japanese Yen often strengthens in times of market uncertainty, as it is seen as a traditionally safe asset.
However, it has been tumbling this week. Investors are opting to buy its safe haven rival, the US Dollar (USD), instead.
The US Dollar has been a more appealing safe haven than the Yen over the past week due partially to Japan’s domestic outlook. Japan’s coronavirus outlook has been worsening, and the latest Japanese ecostats have been concerning investors as well.
A slew of key Japanese ecostats were published today, including inflation, production and confidence stats.
While Tokyo inflation wasn’t quite as bad as expected, it still printed deflation. What’s more, Japan’s industrial production and consumer confidence figures were notably lower than forecast.
Japanese unemployment rate data wasn’t as bad as expected, but this was unable to boost support for the weak Japanese Yen at the end of the week.
GBP/JPY Forecast: Could Bank of England Optimism Boost Sterling?
The Pound has been appealing lately, but further gains may be limited.
Analysts already believe that Pound buying has been overdone, as coronavirus lockdown and Brexit uncertainties persist. If these factors start to weigh on markets more, the Pound could be in for fresh losses as recent optimism unravels.
However, it is possible that upcoming data and news could further support Pound gains and cause GBP/JPY to climb even higher.
Not only will upcoming UK PMI results give markets a better idea of how Britain’s economy performed over the past month, but next Thursday will see the Bank of England (BoE) hold its February policy decision.
If the BoE is more optimistic than expected about Britain’s economic resilience, the Pound could see even further strength.
On the other hand though, a dovish BoE is still highly possible. If the bank hints at more easing to help weather the coronavirus pandemic, the Pound is more likely to shed recent strength.
As for the Japanese Yen, it could steady if the market volatility seen over the past week calms. It may also benefit more from safe haven demand if there is no surprising Japanese news or data.
Aside from January PMI stats, there isn’t much Japanese data that could influence the Pound to Japanese Yen (GBP/JPY) exchange rate next week.
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TAGS: Pound Yen Forecasts