GBP to JPY Exchange Rate Sheds Most of Last Week’s Gains as Safe Haven Demand Surges

June 11, 2020 - Written by David Woodsmith

STORY LINK GBP to JPY Exchange Rate Sheds Most of Last Week’s Gains as Safe Haven Demand Surges

Market demand for riskier assets has led to weeks of Japanese Yen losses, but the British Pound to Japanese Yen (GBP/JPY) exchange rate is slumping again this week. Risk-sentiment paused earlier in the week, and is now slumping in reaction to a more dovish than expected Federal Reserve policy decision yesterday. As a traditional safe haven currency, the Japanese Yen has been one of the currencies to benefit most from the Federal Reserve news.

Last week’s GBP/JPY gains were huge, with the pair surging over five Yen from 133.06 to 138.83. On Friday, GBP/JPY even touched on a high of 139.70. This was the best level for the pair in over a quarter – since the end of February.

However, GBP/JPY has already lost most of those gains due to the Pound’s lack of drive and the Japanese Yen’s rebound on safe haven demand. At the time of writing on Thursday, GBP/JPY is trending in the region of 135.15 again.

GBP Exchange Rates Pressured as UK Government Once Again Rules Out Brexit Extension

Investors had already been hesitant to buy the Pound this week. The Pound is a currency that is increasingly correlated to risk-sentiment due to concerns about Britain’s economic and political stability.

Sterling has been unable to even benefit much from the market’s recent risk-sentiment, due to concerns over how the Britain’s government has been handling the coronavirus pandemic, as well as returning Brexit fears.

As a result, returning safe haven demand left the Pound especially unappealing against traditional safe havens like the Japanese Yen.

As the Yen surged on safe haven demand, the Pound’s appeal continued to see deeper pressure.

Today, UK Minister Michael Gove reasserted that the government would not seek to extend the Brexit transition period beyond the end of 2020.

On top of this, Sterling is being pressured by concerns that Britain’s economy could have been even harder hit by the coronavirus lockdown than expected. Key UK data is due for publication tomorrow and analysts are expressing caution.

According to Yohay Elam, Analyst at FXStreet:

‘The lockdown was complete in April, and that will likely show in GDP figures. The economic calendar shows expectations for a collapse of 18.4% in activity, a record-breaking month.

...

Worse than forecasts: A crash worth 20% or more would already trigger doom and gloom headlines, sinking sterling. It could change estimates for the next months, especially as Britain's lockdown has hardly been loosened’

JPY Exchange Rates Surge in Reaction to Federal Reserve Gloom

The Japanese Yen is a traditional safe haven currency – a currency that is widely considered to be a safe investment in times of global uncertainty.

As a result, it is one of the currencies that has benefitted most strongly from this week’s worrying Federal Reserve news.

The Federal Reserve indicated that the US economy would continue to contract over the coming year. On top of this, the bank also said that its near zero monetary policy would remain near zero until the end of 2022.

According to Marshall Gittler, Head of Investment Research at BDSwiss Group:

‘The risk of a second wave outweighed the Fed’s ‘zero forever’ message and the FX market took a distinctly risk-off mood, with a typical reaction’

Concern over the US government’s handling of the coronavirus pandemic and the Fed’s dovishness have limited the US Dollar’s appeal as a safe haven currency.

As a result, the Japanese Yen has benefitted even more strongly as the US Dollar’s rival.

GBP/JPY Exchange Rate Forecast: Safe Haven Demand Could Continue to Push Pair Lower

Market demand for safe haven currencies has been limited lately, at least until this week’s Federal Reserve news shocked investors.

If investors remain anxious about the global economic outlook due to concerns about the coronavirus pandemic’s lasting impact in major economies like the US, then safe haven demand could continue to rise.

In the event that investors continue to look for safe havens, the Japanese Yen is likely to keep surging.

The Pound, on the other hand, will lack much drive to avoid losses due to concerns surrounding Britain’s economy and the Brexit process.

On the other hand though, if more economies show signs of returning to normalcy from the coronavirus pandemic, this may overshadow US economic concern.

This could help risk-sentiment to recover, which would boost the Pound to Japanese Yen exchange rate again.

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TAGS: Pound Yen Forecasts