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GBP to JPY Exchange Rate Rebound Limited as Yen Surges on Safe Haven Demand

August 15, 2019 - Written by Minesh Chaudhari

Following the British Pound to Japanese Yen (GBP/JPY) exchange rate’s tumble on fresh global recession speculation last night, the pair has rebounded this morning. Still, the Pound has been unable to sustain strong gains as the Japanese Yen continues to benefit from market demand for safe haven assets.

Since opening this week at the level of 127.11, GBP/JPY saw mixed movement until a surprise delay in some US-China trade tariffs left the safe haven Japanese Yen tumbling from its best levels.

Since hitting a high of 128.95 on Tuesday though, GBP/JPY has been unable to hold its gains. The pair came under additional pressure yesterday, as global growth slowdown fears exacerbated. While GBP/JPY continues to trend well above the week’s worst levels, it has struggled to hold above its current levels of 128.70.

GBP Exchange Rates Steadier as Stronger UK Inflation and Retail Sales Support Currency

Following weeks of worsening no-deal Brexit fears dragging the Pound lower and lower, this week the British currency’s attempts at rebounding have found a little support thanks to some stronger than expected UK ecostats.

On Wednesday, Britain’s July inflation rate beat forecasts with the yearly rate unexpectedly rising to 2.1% - above the Bank of England’s (BoE) inflation targets.

The news doused Bank of England interest rate cut bets, caused speculation of a possible rate hike to rise, and offered the Pound’s rebound attempt some more support.

Sterling’s rebound was further assisted today by Britain’s July retail sales results, which also beat expectations in many key prints.

UK retail sales rose 0.2% month-on-month, rather than contracting as expected. This was due to a stronger than expected in online sales.

Still, analysts perceived the Pound’s gains as limited, and concerns still dominated Britain’s economic outlook. According to Gabriella Dickens, the Assistant Economist at Capital Economics:

‘The outlook further ahead depends on what happens with Brexit. If there is a no deal Brexit, consumer spending growth would probably fall,’

JPY Exchange Rates Benefit from Safe Haven Demand amid Global Trade and Growth Fears

The Japanese Yen has increasingly been flexing its muscles as the market’s safe haven currency of choice over the past month, as US-China trade relations and global growth uncertainties worsen.

Despite Japan’s mixed economic health, the Japanese Yen is one of the currencies that benefits most strongly when markets look to avoid taking risks and secure their assets somewhere safe.

This week has only further bolstered the Japanese Yen’s appeal as a safe haven.

While the currency was sold from its best levels in profit-taking in response to Tuesday news that the US had delayed some of its planned tariffs on Chinese goods, the currency has been climbing again since then as the softening in tensions was short-lived.

Since yesterday, investors have been even more eager to buy safe haven currencies as the US yield curve inverted.

This has historically been seen as a harbinger of a potential US recession, and due to the US economy’s influence on the global economy this has even worsened global growth slowdown and global recession speculation.

These fears continued to dominate the market today. Even as the Japanese Yen fell back from its Wednesday jump slightly, it still remained appealing overall amid the safe haven demand.

According to a note from Rabobank:

‘Market-related headlines this morning have been dominated by yield curve inversion and the recessionary implications that follow,’

GBP/JPY Exchange Rate Forecast: Brexit and Global Growth Jitters Remain in Focus

The Japanese Yen has been unable to hold its best levels in recent sessions as the Pound has been rebounding on stronger UK inflation and retail sales data.

However, the UK economic calendar will be quieter for the next week or so. As August comes into its second half, Brexit speculation is more likely to return to focus for Pound investors amid anticipation for Parliament to reconvene in September.

With no-deal Brexit fears persisting, the Pound’s potential for gains is limited. The Japanese Yen, still volatile on global trade and growth jitters, is more likely to drive GBP/JPY movement.

If US recession fears lighten due to more strong US data for example, safe haven demand will lighten and the Japanese Yen could fall. US-China trade optimism would also dampen safe haven demand.

Looking ahead to next week, the Pound to Japanese Yen exchange rate could also be driven by Japan’s July trade balance and inflation results.
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