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GBP to JPY Exchange Rate Gains Limited as Safe Haven Demand Returns on Tempered US-China Hopes

October 15, 2019 - Written by James Fuller

As with many Pound exchange rates, the British Pound to Japanese Yen (GBP/JPY) exchange rate recovered from yesterday’s dip overnight thanks to this morning’s Brexit comments from EU Chief Negotiator Michel Barnier. However, the Pound’s gains against the Yen were modest and limited, as investors were hesitant to sell the safe haven Japanese Yen amid the latest rise in US-China trade jitters.

A combination of Brexit hopes and risk-sentiment saw GBP/JPY rocket last week, putting in shockingly impressive gains of over 6 Yen. GBP/JPY advanced from 131.89 to 137.12 throughout the week.

In comparison, yesterday’s GBP/JPY dip to 135.66 was small. While the pair’s recovery from said dip has been limited, it is still trending relatively close to the week’s opening levels near the level of 136.96 at the time of writing.

GBP Exchange Rates Gaining on Brexit Hopes Mere Days from EU Summit

Investors sold the Pound yesterday, on what was called by some analysts a ‘reality check’.

With mere days until the last realistic chance to secure a Brexit deal before the current 31st of October Brexit date, and officials saying much work still needed to be done, the Pound gave up some of the strong gains seen last week.

However, that dip ended up being surprisingly short-lived, and Sterling was climbing again today.

EU Chief Negotiator Michel Barnier said this morning that he believed it was still possible for a Brexit deal to be reached as soon as this week.

His optimism provided markets with a fresh boost in optimism too, so the Pound advanced today. Analysts continue to express caution however

EU negotiators now expect fresh concessions from UK Prime Minister Boris Johnson before a deal can proceed, and some analysts fear such a concession could come at the cost of a UK Parliamentary majority for any attempt to pass a deal.

According to Morten Lund, Analyst at Nordea Markets:

‘The Pound’s moves higher are driven by belief a deal can be struck, but we are hearing some scepticism from the EU ... I think more concessions will be needed from (Prime Minister Boris Johnson), but if he delivers them it will be at the cost of any majority he may have in parliament for the deal,’

Overall though, market focus on Brexit helped the Pound to firm today, even as Britain’s latest job market stats failed to meet expectations.

JPY Exchange Rate Losses Limited by Safe Haven Demand

Last week, hopes that the US and China were on the cusp of reaching some kind of limited trade deal left investors seeking riskier, trade-correlated assets. This left the safe haven Japanese Yen plummeting.

However, safe haven demand has already returned somewhat this week, as investors reassess the results of last week’s US-China talks, and officials play down the progress that was made.

US President Donald Trump had toted that a ‘Phase 1’ preliminary trade deal had been reached, but other US and China officials have since put a dampener that anything had been set in stone.

This left safe haven currencies like the Japanese Yen more appealing today, though mixed Japanese data has not bolstered Yen support much.

Japan’s latest tertiary industry index beat forecasts, but capacity utilization fell short in August.

GBP/JPY Exchange Rate Forecast: Could Brexit Deal Be Reached This Week?

Despite the safe haven demand supporting the Japanese Yen today, the Pound to Japanese Yen exchange rate is still being driven mostly by Brexit news and the influential movement of the Pound.

With the outcome of this month’s Brexit deadline potentially being resolved in mere days, it’s highly likely that the Pound will be completely dominating GBP/JPY movement in the coming sessions.

UK-EU negotiations today could set the tone for the rest of the week. If they go badly, hopes of a deal will lighten and the Pound will fall.

Good progress in talks would have the opposite effect, boosting hopes of an imminent or at least soon Brexit deal and leading to further Pound strength.

Investors are likely to brush over upcoming UK and Japanese data. Any new shifts in US-China trade negotiations or global risk-sentiment would also influence the Pound to Japanese Yen exchange rate.
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