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GBP to JPY Exchange Rate Slides on Fresh Brexit Jitters and Safe Haven Demand

March 5, 2019 - Written by Ben Hughes

A brief rise in Pound demand on soft Brexit hopes yesterday was short-lived, as the British Pound to Japanese Yen (GBP/JPY) exchange rate tumbled today in reaction to the latest Brexit uncertainties, as well as stronger market demand for safe haven currencies. Investors are now anticipating further Brexit news, as well as Japanese data due later in the week.

It’s been a busy week for GBP/JPY, as after opening last week at the level of 144.48 the pair saw a significant weekly gain of over three Yen, closing the week at the level of 147.85. GBP/JPY was unable to hold last Friday’s 2019 high of 148.48, and this week so far has tumbled on fresh market demand for safe haven currencies.

GBP/JPY touched this week’s low of 146.66 earlier today, but at the time of writing was trending close to the level of 147.02.

Despite the latest UK services PMI stats coming in stronger than expected and avoiding the forecast contraction, the data still left investors concerned about Britain’s slow Q1 2019 growth.

Concerns that there was not enough domestic support for UK Prime Minister Theresa May’s Brexit deal only left Sterling even less appealing.

GBP Exchange Rates Pressured by Fresh Brexit Jitters and UK Services Report

Yesterday, demand for the Pound saw a limited boost as speculation rose that critics of UK Prime Minister Theresa May’s Brexit deal, notably those within her Conservative Party, were softening their stances.

The news briefly bolstered hopes that Prime Minister May could bolster enough support for her deal to pass it through Parliament and secure a soft Brexit during next week’s meaningful vote.

However, today’s Brexit news saw that optimism quickly dissipate.

John McDonnell, the Shadow Chancellor of Britain’s opposition Labour Party, said that not many Labour MPs would be willing to vote in favour of the Prime Minister’s Brexit plan during next week’s Parliament vote.

As a result, hopes that the deal would find enough support to pass weakened, and the Pound tumbled in reaction.

On top of the latest Brexit jitters, demand for the Pound was also weakened by further signs of weakness in Britain’s economy. While the latest UK services PMI actually beat forecasts and printed at 51.3, the data still concerned analysts.

This was because the data was still close to stagnation, and indicated that Britain’s economy may have been stagnant throughout Q1.

JPY Exchange Rates Sturdy on Safe Haven Demand

The Japanese Yen saw stronger demand today, after mixed performance last week and on Monday, thanks to the latest market shift in risk-sentiment and the latest Japanese data.

During the Asian session, China confirmed that it was cutting its growth forecasts for the nation. Amid the confirmation that the world’s second biggest economy was slowing, investors were more hesitant to take risks.

As a result of the fresh risk aversion, investors found safe haven currencies like the Japanese Yen more appealing.

Safe havens typically benefit during times of market uncertainty.

Demand for the Japanese Yen was further bolstered today by Japan’s February services PMI stats from Nikkei, which printed higher than analysts predicted.

Japan’s services PMI improved from 51.6 to 52.3 rather than the expected 52.1.

GBP/JPY Exchange Rate Forecast: Investors Anticipate Japanese Growth Report

There won’t be much in the way of more UK data this week, meaning the Pound will continue to be driven by Brexit speculation and development.

Influential Japanese data due later in the week could influence the Pound to Japanese Yen (GBP/JPY) exchange rate as well though, starting with a speech from the Bank of Japan’s (BoJ) Harada on Wednesday.

Japan’s latest coincident index and leading economic index stats will be published on Thursday, but the week’s biggest news will be Japan’s growth results due for publication on Friday.

Japan’s final Q4 Gross Domestic Product (GDP) growth rate is forecast to have recovered from contraction. The quarterly figure is expected to rise from -0.7% to 0.4%, with the annual figure expected to climb from -2.6% to 1.8%.

Other Japanese data that could influence GBP/JPY towards the end of the week includes Japanese household spending and current account stats.

Of course, as the Yen has benefitted from safe haven demand this week, shifts in market risk-sentiment could also influence the Pound to Japanese Yen exchange rate.
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