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Pounds to Yen Exchange Rate Climbs as Investors Sell Safe Havens

November 26, 2018 - Written by Minesh Chaudhari

Market demand for safe haven currencies like the Japanese Yen has been dwindling lately, and the Japanese Yen has seen little in the way of domestic support either. As a result, the British Pound to Japanese Yen (GBP/JPY) exchange rate saw some of the biggest gains among major Pound exchange rates on Monday.

After opening last week at the level of 144.72, GBP/JPY fluctuated widely for most of last week and only closed slightly higher at the level of 144.77. When markets opened on Monday, GBP/JPY spent most of the day climbing and trended near the level of 145.64 at the time of writing. This put it just slightly below last week’s best levels.

GBP Strength Limited as Investor Focus Returns to Brexit Bill’s Domestic Popularity

Over the weekend, the negotiated UK-EU Brexit bill was finally fully confirmed by UK and EU officials following over a year of difficult negotiations

However, while the finalisation of the agreed deal was slightly supportive for Pound movement on Monday, the Pound’s strength was overall highly limited as market focus returned to uncertainties within UK politics.

UK Prime Minister Theresa May’s Brexit deal now faces potentially even greater obstacles at home than UK negotiators did in Brussels, due to concerns that there is not enough support among UK MPs to pass the deal.

Markets are anxious that if the Brexit deal fails to pass through UK Parliament, it could collapse completely and lead to a ‘no-deal Brexit’.

Some of Prime Minister May’s most significant allies, including Northern Ireland’s Democratic Unionists Party (DUP) and even many members in her own Conservative Party, have indicated they will not support the agreed UK-E deal.

According to Lee Hardmann, Currency Analyst at MUFG:

‘The failure of the Pound to rally on recent positive developments suggest the market is pricing in that the deal won’t pass the first time in parliament,

During the next two weeks the Pound will likely trade with increased volatility,’

However, markets are also hoping that even if the deal fails its first attempt at Parliament it will succeed in a later attempt. Simon Derrick, Chief Currency Strategist at BNY Mellon, said:

‘The outcome being priced into GBP right now is the idea of a successful second vote in Parliament on the negotiated deal and an orderly exit on March 29,’

In terms of data, Monday saw the publication of Britain’s October finance mortgage approvals results. These fell short of expectations but had little notable impact on the Pound’s appeal.

JPY Sold Versus Most Majors Amid Lack of Demand for Safe Havens

Much of the Japanese Yen’s recent strength has been due to market demand for safe haven currencies, as Japanese data and the Bank of Japan’s (BoJ) monetary policy outlook have given investors little to be bullish about.

In a major sign that market risk-sentiment has been rising lately, the Japanese Yen fell on Monday while many riskier currencies strengthened.

This was due to various global factors, including calming political jitters as well as speculation that the Federal Reserve’s monetary policy outlook would soon become more cautious.

Among the primary causes of lower safe haven demand on Monday was speculation that US-China trade tensions could lighten this week, if an upcoming meeting between US President Donald Trump and Chinese President Xi Jinping goes well.

Anticipation for the meeting has also kept a lid on risk-sentiment however, with investors hesitant to avoid safe haven currencies too much in the event that US-China trade tensions worsen rather than improve.

Demand for the Yen was dented further by a disappointing Japanese manufacturing PMI on Monday. The figure slipped to just 51.8 in November, below the expected 53.0.

GBP/JPY Forecast: Brexit and Risk-Sentiment News Remains in Focus

Amid a lack of notable ecostats due for publication tomorrow, and as the anticipated UK Parliament vote on the Brexit bill draws closer, the Pound to Japanese Yen exchange rate is likely to remain focused on politics and geopolitics.

UK distributive trades data from CBI will be published on Tuesday, but is unlikely to be particularly influential for the Pound. Any perceived shifts in support for the Brexit bill are much more likely to drive movement.

For example, if UK Prime Minister Theresa May’s attempts to drive support for her negotiated Brexit deal appear to be working, the Pound could see further gains against the Japanese Yen.

Of course, the Yen’s strength could improve too if safe haven currencies become more appealing again.

If investors become more anxious that US-China trade tensions may fail to improve or could even worsen, the Pound to Japanese Yen exchange rate could shed some of Monday’s gains.
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