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Pound Sterling to Yen Exchange Rate: GBP/JPY Hits Monthly Best amid Rising Hopes for Coronavirus Vaccine

July 21, 2020 - Written by James Fuller

Defying market concerns about Britain’s coronavirus and Brexit outlooks, the British Pound to Japanese Yen (GBP/JPY) exchange rate has seen strong gains so far this week. The Pound is capitalising on the market’s appetite for riskier currencies, while a lack of safe haven appeal is leaving the Japanese Yen floundering. As a result, the pair is currently trending near its best levels in over a month.

Sterling weakness last week led GBP/JPY to lose ground. After opening last week at the level of 134.90, GBP/JPY edged lower and closed the week at the level of 134.51.

However, the market’s general lack of appetite for safe havens has kept the Yen under pressure lately, so GBP/JPY is seeing a lot of upside movement too. This week’s combination of factors has led to a jump in demand for GBP/JPY, and this morning the pair touched on a high of 136.43. This was the best level for the pair since the first half of June, over a month ago.

GBP Exchange Rates Benefitting from Coronavirus Vaccine Hopes despite Economic Concerns

Last week was a bearish one for Sterling. The British currency was sold against many major rivals, including the Japanese Yen, as Britain’s economic outlook continued to worsen.

Britain’s latest growth data showed that Britain’s economy was hit harder than expected by the coronavirus pandemic so far. The UK government’s actions on the coronavirus and Brexit have confused markets as well.

However, this week the Pound has benefitted from fresh hopes that a British company could be making major progress on a potential coronavirus vaccine.

According to Yohay Elam, Analyst at FXStreet:

‘The University of Oxford and AstraZeneca announced that the Phase 1/2 trial of a COVID-19 vaccine candidate proved safe and effective, providing hope for administering immunization to Brits and others within a year. The Lancet, which published the results, hailed the British achievement and also criticized the government's plan to hoard the vaccines. For investors, the potential for more rapid deployment of a vaccine to Brits is a boost to the Pound.’

UK vaccine hopes have not only bolstered the Pound’s appeal overall, but have also buoyed market appetite for taking risks. This is only further supporting the Pound to Japanese Yen exchange rate, as investors in the mood for risks are selling safe haven assets.

JPY Exchange Rates Tumble as Investors Leave Safe Haven Assets

The Japanese Yen is a currency often correlated with market demand for safe havens.

The Yen is a traditional safe haven currency, and it often benefits in times of broad market uncertainty. It has seen periods of strength during the coronavirus pandemic as a result of this.

However, hopes for a global recovery from the pandemic often have the opposite effect, making investors more eager to take risks on the hopes that risk-correlated assets will continue to rise in value instead.

This has been among the primary causes for the Japanese Yen’s weakness lately. As hopes for major economies to recover from the coronavirus pandemic improve and hopes of a vaccine even rise, the Yen has been unable to benefit much from the market’s risk sentiment.

The latest Japanese data has not been enough to bolster the Yen’s support either.

This morning saw the publication of Japan’s June inflation rate report. Inflation was just slightly better than expected, with the core figure stagnating instead of contracting year-on-year.

Largely brushing over the data, investors opted to sell the Yen instead as the market’s coronavirus vaccine hopes lifted global risk-sentiment.

GBP/JPY Exchange Rate Forecast: Market’s Coronavirus Outlook to Dominate Movement

With the Pound to Japanese Yen exchange rate moving strongly in relation to market risk-sentiment this week, that movement could continue in the coming sessions.

If markets remain optimistic over coronavirus vaccine developments from British companies, the Pound could continue to benefit strongly from the market’s risk-on movement.

On the other hand though, if coronavirus concerns worsen again or there are fresh fears over a no-deal Brexit, the Pound could quickly shed some of its recent strength.

The safe haven Japanese Yen is in a good position to benefit from any solid fresh market coronavirus panic. Of course, the possibility of a ‘second wave’ hitting major economies could potentially benefit JPY.

Upcoming UK and Japanese data due for publication through the rest of the week could of course influence the Pound to Japanese Yen exchange rate as well.
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