Pound to Yen Exchange Rate Forecast: GBP/JPY to Rise on Risk Off Trading

Modified: Monday, 12 January 2015 22:52 BST - Written by John Cameron

STORY LINK Pound to Yen Exchange Rate Forecast: GBP/JPY to Rise on Risk Off Trading

Initial Gains for Global Shares

Global equities opened up in bright form earlier today as market participants returned from their weekend break. However, the positive move for stocks, which saw London’s FTSE 100 jump to as high as 6,545 earlier, lasted only until the NYSE opening bell. As soon as the trading day got under way in the US, investor sentiment took a hit as traders focussed on the ongoing evidence that, with the notable exception of America, the world economic recovery is stalling.

VIX Spikes as US Trading Recommences

The flight to safety in the markets was evidenced by a sharp uptick in the VIX ‘Fear Index’ during early trading Stateside; the closely-monitored sentiment gauge pushed through the 20.00 barrier as market participants took fright at the ongoing slide in global oil prices. The shift lower in the price of a barrel of black gold took a renewed hit when analysts at Goldman Sachs trimmed their 3-month forecast for Brent Crude from $80 per barrel all the way down to $42.

Traders Think Short Term

In the long term, the sharp move lower for oil is likely to provide the global economy (with the potential exception of the energy sector) with a boost, pushing equities higher. However, the market is notoriously short term in its thinking and instead of factoring-in a long term benefit, they instead fretted about the economic fundamentals which are hitting the price of oil.

Oil Price Fall Bad News for US Dollar

Peter Gorra of BNP Paribas certainly saw it this way, stating earlier that, ‘we’re seeing some short-term volatilities in the equities market and currencies market. The oil move is exacerbating the move in the U.S., as oil reaches levels that really hurt the U.S. more than anyone else.’ Gorra’s suggestion that the downshift in crude may, when it works its way through, may harm the American economy certainly spells bad news for equities moving forward.

Japanese Yen Exchange Rate Strengthens on Flight to Safety

The major beneficiary of reduced levels of appetite for risk in the markets today has been the Japanese Yen (currency:JPY) which is increasingly regaining its allure as a safe haven currency. Support for the Far Eastern tender has seen the Pound Sterling Yen exchange rate drop back into the 179.000s during late trading today. Commentators predict that there could be further losses to come for the Yen if the prevailing ‘risk off’ trading environment continues.

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