GBP to JPY Exchange Rate Volatility Persists as Markets Jump Between Risk-On and Risk-Off

July 1, 2020 - Written by John Cameron

STORY LINK GBP to JPY Exchange Rate Volatility Persists as Markets Jump Between Risk-On and Risk-Off

While investors have been a little more eager to look for safe haven currencies recently, the British Pound to Japanese Yen (GBP/JPY) exchange rate has been recovering this week. Investors are buying the Pound back from its lows, while some brief jumps in market optimism and risk-sentiment have been limiting the market movement towards

As safe haven demand fluctuates, GBP/JPY has seen broadly mixed movement in recent weeks. Last week saw GBP/JPY attempt to jump, before risk-sentiment fell again and GBP/JPY only closed the week at the level of 132.27.

This week’s movement has been similar so far. GBP/JPY has been trending with a largely upside bias amid hopes for a global economic recovery, but the spectre of a ‘second wave’ of coronavirus infections is making investors hesitant to sell the Yen too much. GBP/JPY has touched on a fortnight high of 133.91 this week, but at the time of writing is trending a little lower in the region of 133.61.

GBP Exchange Rates Rebounding as Q2 2020 Comes to an End

Investors have been buying the Pound since yesterday, despite a lack of support for the British currency.

While the Pound’s outlook is clouded by fears that the coronavirus pandemic will continue to impact Britain’s economy, as well as concerns that 2020 could end with a no-deal Brexit, investors still bought the Pound today.

This is because investors are buying the British currency from its cheapest levels in month-end fixings. It has been a heavily bearish few months for the Sterling, and the currency is cheap.

Kenneth Broux, Analyst at Societe Generale, speculates Sterling may have been oversold:

‘Random is the word. I don’t think it has anything to do with the announcement of the government. We know that the announcement of infrastructure planning was going to come. I wouldn’t try and find an excuse. Maybe it’s been oversold. It could be that liquidity is poor today,’

The latest UK data had little notable impact on the Pound outlook however. Britain’s latest manufacturing PMI met forecasts and came in at 50.1.

The report indicated that there was still much uncertainty in the manufacturing outlook, which could be said for Britain’s economic outlook on the whole.

JPY Exchange Rates Struggle to Capitalise on Bursts of Safe Haven Demand

The Japanese Yen is a traditional safe haven currency. It is often appealing in times of global market uncertainty.

Safe haven demand has indeed been rising in recent weeks, as global fears of a ‘second wave’ of coronavirus infections rise.

Despite this though, risk-off movement and safe haven demand have not been consistent enough for the Japanese Yen to hold its ground.

This has been due to continued signs of hope that some major economies, like the Eurozone, could recover from the pandemic strongly towards the end of the year. This has kept investors from moving too far from risk-sentiment.

On top of this, the latest Japanese data has been underwhelming. It has perhaps indicated that Japan’s economy was not weathering the pandemic as well as hoped. Japan’s retail sales, unemployment rate and Tankan index stats this week all fell short of forecasts.

GBP/JPY Exchange Rate Forecast: Will Risk-On Movement Persist?

Markets have been jumping to and from risk-sentiment and safe haven demand lately. Uncertainty over whether major economies will rebound from the coronavirus pandemic or fears that the pandemic could get much worse are dominating the outlook.

This has meant that currencies correlated to safe haven demand, like the Japanese Yen, have actually been more volatile than usual.

Due to persisting hopes of economic recovery in some major economies, safe haven demand is not consistent enough to help the Yen to hold near its highs.

As a result, the Pound to Japanese Yen exchange rate is likely to continue its recovery attempts, even if upcoming Japanese data impresses.

On the other hand though, lingering signs of safe haven demand could also limit GBP/JPY’s potential for gains.

Investors will be hesitant to buy the Pound to Japanese Yen exchange rate too much, as the Pound outlook remains dented by coronavirus fears and the Japanese Yen could still benefit from a sudden surge in risk-aversion.

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TAGS: Pound Yen Forecasts