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Pound Sterling (GBP) to Japanese Yen (JPY) Drops to Lowest Level Since November on Brexit Fears

January 9, 2017 - Written by John Cameron

The Pound to Japanese Yen exchange rate continued to trend poorly throughout Tuesday’s European session but held above the week’s worst levels in the afternoon.

This was partially due to the week’s GBP bearishness fading, but also hope from investors that the opposition Labour party would help the case for Tory backbenchers after Labour leader Corbyn came out in support for remaining in the market.

[Previously updated 09/01/2017]

The Pound to Japanese Yen exchange rate edged lower last week as demand for ‘safe haven’ currencies like the Yen was low enough for Sterling to hold its ground. However, on Monday Brexit fears worsened once again causing GBP/JPY to plummet.

GBP/JPY slipped from 144.29 to 143.69 last week. On Monday morning alone, GBP/JPY plummeted over a Yen to 142.05 – its worst level since November 2016.

Pound (GBP) Undermined by Prime Minister’s Brexit Comments

Sterling slipped slightly last week, as Britain’s slew of optimistic PMI figures was not enough to give the British currency a firm footing. Instead, the Pound dropped on concerns that the UK government lacked a concise Brexit negotiations strategy or team.

Brexit concerns only worsened over the weekend, when UK Prime Minister Theresa May made comments indicating that Britain cannot simply hold onto ‘bits’ of benefits from the European Union after the Brexit.

To investors, this indicated that May was denying the possibility of post-Brexit single market access. As one of the biggest concerns about the Brexit process worsened, this had a considerable downside effect on GBP trade on Monday.

Japanese Yen (JPY) Trends Firmly on Japanese Economic Hopes

While the Japanese Yen’s strength has been weighed on by the broad strength of the US Dollar in recent weeks, Japanese economic sentiment has been decent and this is actually due in part to the weakened Yen.

As the Yen continues to weaken against the US Dollar, the profits made by Japanese exporters improve. Analysts in recent weeks have also claimed that the Japanese economy is likely to see growth in 2017.

Towards the end of 2016, Japanese economic factors began to show an increasing number of upside factors, partially due to higher industrial production.

With the Japanese government promising to continue focusing on economic improvement, market sentiment in Japan is solid which has left the Yen with a steady flow of demand.

GBP/JPY Forecast: Quiet UK Economic Calendar Ahead

Global risk factors are likely to drive the Pound to Japanese Yen exchange rate for the remainder of the week – that is if Sterling can recover from its current Brexit jitters.

Analysts still widely expect the Pound will see an extended period of pressure until the plan of the UK government for its post-Brexit UK-EU trade deals become clearer. However, even after the UK government’s plan is revealed concerns will remain that the plan may not be agreed to in negotiations.

This week’s UK data is unlikely to give the Pound a significant boost either. All of the week’s influential UK stats will be published on Wednesday, including the latest UK trade deficit figures, industrial production, manufacturing production and NIESR’s December UK growth projection.

Japan’s economic calendar is a little busier. Tuesday will see the publication of Japan’s December consumer confidence results, followed by November trade surplus figures on Wednesday and other less-influential stats throughout the week.

The strength of the US Dollar will also play a key part in GBP/JPY movement. While USD demand is high, risk-sentiment is usually low which is an upside factor for JPY trade. The Yen’s own movement will of course by limited by broad USD demand however.

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