GBP to JPY Exchange Rate Starts Recovery as Safe Haven Rally Short-Lived

June 12, 2020 - Written by Tim Boyer

STORY LINK GBP to JPY Exchange Rate Starts Recovery as Safe Haven Rally Short-Lived

After spending most of the week falling, the British Pound to Japanese Yen (GBP/JPY) exchange rate has been rebounding slightly today. This movement has been more due to weakness in the Japanese Yen, as the Pound outlook is still being dented by various domestic and global factors. The Japanese Yen is a safe haven currency, and this has been the reason for most of this week’s Japanese Yen movement.

Since opening this week at the level of 138.83, GBP/JPY spent most of the week tumbling. The pair saw significant losses of almost 5 Yen throughout the week, almost shedding all of the impressive gains seen the previous week.

Yesterday, GBP/JPY touched on a weekly low of 133.92. This morning though, GBP/JPY has been rebounding and is trending in the region of 135.53 at the time of writing.

Even though GBP/JPY has avoided weekly lows, it still appears on track to see notable losses this week overall.

GBP Exchange Rates Gains Limited by Dire UK Economic Outlook

While the Pound saw a rebound against the Japanese Yen today, this was more due to investors selling safe haven currencies again.

Sterling has found a little support thanks to today’s return to risk-sentiment. This is because the Pound has become increasingly risk-correlated in recent months.

Economists are also fairly optimistic that even a limited boost in economic activity could help Britain’s economy. According to Kemar Whyte, Senior Economist at the National Institute of Economic and Social Research:

‘The economy now appears to have bottomed out, as recent survey evidence suggests an easing in the rate of contraction in the manufacturing and services sector. The re-opening of non-essential stores from 15 June, coupled with the government’s continued support should aid a gradual, albeit limited, recovery in domestic activity.’

Asides from some cautiously optimistic comments from market analysts, the Pound’s outlook still remains clouded in uncertainty and concerns due to a combination of coronavirus and Brexit fears.

There is still broad concern over the large number of UK coronavirus deaths, as well as the government’s continued handling of the pandemic.

This is being combined with fears that the Brexit transition period will not be extended, potentially leading to a no-deal Brexit scenario at the end of 2020. Overall, these factors are limiting the Pound’s ability to recover more strongly.

JPY Exchange Rates Slump as Safe Haven Rebound Short-Lived

The Japanese Yen saw a brief rise in demand yesterday. In reaction to a surprisingly dovish tone from the Federal Reserve, as well as rising concerns about US economic and political stability, investors looked to safe havens.

The Japanese Yen is a particularly appealing safe haven. This helped it pull GBP/JPY even lower yesterday as investors piled into it following the Fed decision.

However, this move into safe havens has ultimately been short-lived.

While concerns remain about some economic outlooks, like the US and UK, economists are generally becoming more confident that there is light at the end of the tunnel for some major economies following the coronavirus pandemic.

According to Janet Mui, Investment Director at Brewin Dolphin:

‘We see some positive points -- the worst is over, the economy is gradually re-opening -- but we also see downside risks,

Overall we are adding a bit of equities now, primarily to the US and emerging markets ex-Asia.’

With risk-sentiment rising again today, the safe haven Japanese Yen has been one of the weakest major currencies on the market during Friday’s session.

GBP/JPY Exchange Rate Forecast: Rising Risk-Sentiment Could Keep Yen on the Back-Foot

Even with a lot of uncertainty in the Pound outlook, the Pound to Japanese Yen exchange rate could keep rising going forward.

If investors continue to be more willing to take risks amid signs of global economic recovery from the coronavirus pandemic, investors will be less willing to hold onto the Japanese Yen.

The Pound, increasingly correlated to risk, will also benefit from this market sentiment.

However, the Pound could still see fresh downside shock depending on next week’s upcoming Bank of England (BoE) policy decision.

The bank is expected to ramp up quantitative easing (QE), but any signs that the bank is also considering negative interest rates could send the Pound lower.

Essentially, shifts in global risk-sentiment and the Bank of England’s upcoming decision will be the focus for Pound to Yen exchange rate investors next week.

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TAGS: Pound Yen Forecasts