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Risk-On Tone Leaves Pound Japanese Yen (GBP/JPY) Exchange Rate Muted

November 8, 2019 - Written by John Cameron

Pound Japanese Yen (GBP/JPY) Exchange Rate Flat as US-China Optimism Sparks Risk Appetite

The Pound Sterling Japanese Yen (GBP/JPY) exchange rate was left flat, with the pairing currently trading at around ¥140.1000.

The safe-haven Japanese Yen was left under pressure on Friday as risk appetite increased following a fresh upswing of US-China trade optimism.

Reports revealed that officials in both Washington and Beijing said each side would roll back tariffs if a ‘Phase One’ trade deal is signed by US President Donald Trump and his Chinese counterpart Xi Jinping.

Investors moved towards riskier currencies after White House spokeswoman, Stephanie Grisham told Fox News Channel:

‘I cannot get ahead of the talks with China, but we are very, very optimistic that we will reach a deal soon.’

Commenting on this, general manager of fixed income business solutions at SBI Securities Co in Tokyo, Tsutomu Soma stated:

‘The overall tone is risk-on, which is a positive for the Dollar and a negative for the Yen.

‘We can see this in other markets, which is why stocks are so strong. We still need to figure out when the United States and China will sign this deal, but the mood so far is supportive for markets.’

US-China Skepticism Leaves Japanese Yen (JPY) Muted

However, Japanese Yen losses were likely offset slightly, leaving the pairing flat by skepticism about US-China relations in and outside the White House.

In an interview with Fox Business Network, White House trade advisor, Peter Navarro said:

‘There is no agreement at this time to remove any of the existing tariffs as a condition of the phase one deal.

‘They’re just negotiating in public, trying to push this in a direction.’

He also added that the reports were put out by ‘Chinese propaganda press.’

Commenting on this, Markets’ Neil Wilson said:

‘There was confusion over exactly what the Chinese official said, but seemed to be clarified by the US saying the phase one deal would include tariff rollback. White House ‘sources’ reports later talked of ‘fierce internal opposition’ with no final decision made.

‘There’s a strong sense of the ‘if’ about this. If a first phase trade deal is done, there is agreement to roll back some existing tariffs, but only if the deal is agreed.’

BoE Divide Leaves Pound (GBP) Flat

Meanwhile, Thursday saw the Bank of England (BoE) leave rates unchanged in its final monetary policy meeting before the UK’s snap election on 12th December.

Sterling was left under pressure after two Monetary Policy Committee members, Jonathan Haskel and Michael Saunders unexpectedly voted in favour of a rate cut.

These were the first policymakers to vote for a cut since just after the 2016 Brexit referendum, which weighed on GBP sentiment.

Added to this, Governor Mark Carney said the Bank would consider a rate cut if Brexit uncertainty and global headwinds fail to ease.

Commenting on the BoE’s decision to leave rates on hold, PwC economist, John Hawksworth said:

‘In the short term at least, it seems the MPC is more concerned about the downside risks to growth and is prepared to pull the trigger on a rate cut if and when these risks materialize.’

Pound Japanese Yen Outlook: Will JPY Slump on Weak Machinery Orders?

Looking ahead to the start of next week’s session, the Japanese Yen (JPY) could edge lower against the Pound (GBP) following the release of September’s machinery orders.

If Japan’s machinery orders fail to rebound, it could cause Yen sentiment to slide.

Meanwhile, Sterling could rise on Monday following the release of the UK flash GDP growth data.

If the preliminary data suggests the UK has escaped falling into recession in the third quarter, and ahead of the previous Brexit deadline, the Pound Japanese Yen (GBP/JPY) exchange rate is likely to rise.

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