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Pound Japanese Yen (GBP/JPY) Exchange Rate Rallies as Parliament Gears up for Internal Market Bill Debate

September 14, 2020 - Written by Frank Davies

Growing Opposition to Internal Market Bill Fuels GBP/JPY Exchange Rate Gains

Increasing parliamentary opposition to Boris Johnson’s Internal Market bill encouraged the Pound Sterling to Japanese Yen (GBP/JPY) exchange rate to recover ground on Monday.

Hopes that the bill could fall down in the upcoming parliamentary votes lifted the Pound against its rivals at the start of the week.

As the bill’s potential failure could go some way towards repairing relations between the UK and EU the mood of GBP exchange rates generally improved.

Even so, the lingering risk of the UK ending the current transition period without any deal with the EU in place still kept a limit on the bullishness of the Pound at this juncture.

Support for the Japanese Yen, on the other hand, diminished as renewed hopes of progress towards a possible Covid-19 vaccine helped to reduce safe-haven demand.

Rising UK Unemployment Forecast to Dent Pound Bullishness

The mood towards the Pound could easily sour in the days ahead, though, thanks to the latest UK labour market and inflation data.

Forecasts point to an uptick from 3.9% to 4.1% in July’s unemployment rate, highlighting the pressure that the labour market remains under.

If unemployment rises in spite of support from the government’s furlough scheme this may dampen the appeal of the Pound on Tuesday.

Unless the labour market can demonstrate greater resilience in the face of Covid-19 disruption the GBP/JPY exchange rate may struggle to hold onto its recent gains.

August’s UK consumer price index, meanwhile, looks set to deliver a negative monthly reading, exposing the Pound to additional selling pressure.

As negative inflation would give the Bank of England (BoE) renewed cause for concern this could drive the Pound into a fresh slump against its rivals.

Japanese Yen Strength Set to Fade Ahead of Trade Data

Any renewed sense of market risk aversion could benefit the Japanese Yen, on the other hand, as doubts over the outlook of the global economy persist.

Wednesday’s raft of Japanese trade data may also provoke volatility for the GBP/JPY exchange rate.

Confidence in the performance of the Japanese economy looks set to take a fresh blow with forecasts suggesting that the trade balance fell into a state of deficit.

Any deterioration in Japan’s trade performance would cast further doubt over the economy’s ability to recover from the Covid-19 pandemic, limiting the potential for Japanese Yen gains.

However, if export volumes show a smaller contraction than in July this may help to shore up the Yen in the short term.
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