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GBP to JPY Exchange Rate Rebounds from Post-2016 Worst as Safe Haven Demand Cools

August 6, 2019 - Written by James Fuller

Following Monday’s session, when the Pound was sold on rising no-deal Brexit fears and the Japanese Yen gained on safe haven demand, the British Pound to Japanese Yen (GBP/JPY) exchange rate rebounded and steadied today. Investors bought the pair back from its worst levels since 2016 in a bout of profit-taking, as fears of a full-blown currency war eased just slightly.

GBP/JPY still remains significantly low compared to the levels seen for most of the year so far. Last week saw GBP/JPY open at the level of 134.38 and fall over four Yen, to close the week near the level of 129.61.

This week saw GBP/JPY briefly dip even lower when markets opened, touching a two year of 128.17 before rebounding. This was the worst level for GBP/JPY since late-2016 – the aftermath of the Brexit referendum.

GBP/JPY has been trending a little higher since this morning as investors sell the Japanese Yen from its best levels. At the time of writing, GBP/JPY was trending closer to the level of 129.75 – just above the week’s opening levels.

GBP Exchange Rates Rebound from Worst Levels but No-Deal Brexit Fears Persist

Last week saw the Pound plummet against many major currencies, as fears rose that Britain’s new Boris Johnson-led government would genuinely consider a no-deal Brexit rather than accept a Brexit deal that included the controversial Irish backstop.

Fears that a no-deal Brexit could become reality worsened at the beginning of this week too, as Johnson allies indicated that there would be little MPs could do to prevent a no-deal Brexit if the government aimed for one.

This, combined with the Japanese Yen’s strength, pushed the Pound to its worst levels yesterday.

The Pound rebounded from those lows today, thanks largely to profit taking as investors bought the currency back from its cheapest levels.

Sterling did find a little support on reports that the UK government still hoped to negotiate a new Brexit deal.

However, as the EU has said it will not negotiate a deal without the backstop, a no-deal Brexit is still looking very possible, and these concerns are looming over the Pound’s outlook.

JPY Exchange Rates Sold as Safe Haven Demand Steadies from Monday Surge

Over the weekend, the escalation in US-China trade tensions from the end of last week significantly worsened, and speculation rose that talks between the nations could collapse completely.

China allowed its currency, the Chinese Yuan (CNY), to fall to its lowest levels since 2008, prompting the US to accuse China of currency manipulation in retaliation.

Amid signs that the trade war had resumed, that a currency war was possible, and that US-China trade relations may not see any kind of resolution over the next year, investors surged into safe haven currencies like the Japanese Yen.

The Yen was one of yesterday’s best performing major currencies due to this safe haven demand, but its sharp gains meant that it was sold from its best levels in profit-taking today.

Investors steadied on the Japanese currency today. Markets also cooled amid signs that China was stabilising the Yuan following yesterday’s rout.

Still, analysts saw the steadying as fragile and US-China trade tensions could soon worsen further, leaving the Yen in a strong position despite its slip today.

GBP/JPY Exchange Rate Forecast: Further Losses Ahead if Safe Haven Demand Returns?

With analysts speculating that risk-sentiment remains fragile despite today’s rebound, there may be more losses ahead for the Pound to Japanese Yen exchange rate.

According to Hans Peterson, Head of Asset Allocation at SEB Investment Management:

‘I think the tipping point for a more prolonged negative trend (for risk assets) is quite close,’

Similarly, the Pound may have rebounded from its worst levels, but no-deal Brexit fears still dominate the outlook and unless that changes the British currency is likely to remain heavily pressured.

Amid a lack of notable data due until Friday, GBP/JPY could see quite muted movement unless there is some kind of development on Brexit or US-China trade relations.

Friday’s session will see a slew of data though, including growth data from both Japan and the UK. These stats could influence Pound to Japanese Yen exchange rate movement if they surprise investors.
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