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Sterling-Yen Exchange Rate Continues Advances as Market Sentiment Calms

October 5, 2020 - Written by David Woodsmith

Despite uncertainty over the health of US President Donald Trump, hopes that he will recover from the coronavirus disease have helped markets to calm today, and this is making it easier for the British Pound to Japanese Yen (GBP/JPY) exchange rate to advance today. Looking ahead, Brexit and coronavirus developments will remain the focus for both Pound and Japanese Yen investors, as recent data has done little to influence the outlook in these times of high uncertainty.

Last week, GBP/JPY was able to advance on Brexit hopes despite safe haven demand at the end of the week. Overall, GBP/JPY advanced from the level of 134.47 to 136.22, an impressive gain of almost two Yen.

As investors are selling safe haven currencies today, GBP/JPY is seeing even further gains. At the time of writing, GBP/JPY is trending around a high of 137.09 – the best level for the pair since its early September plummet.

Still, GBP/JPY hasn’t even recovered half of the huge losses seen at the beginning of September – the pair remains well below the levels of 141.00 seen this time a month ago.

GBP Exchange Rates Find Support in UK Data and Brexit Hopes

The Pound was a little more appealing to investors on Monday, helping it to continue last week’s advance against some major currencies. This included the Japanese Yen, which weakened during the European session.

Sterling found some support in this morning’s UK ecostats. Markit’s final UK PMIs were published, showing that the services sector performed better than expected in September.

According to Chris Williamson, Chief Business Economist at IHS Markit:

‘Optimism about the year ahead has meanwhile cooled somewhat, hinting that risks for coming months lie skewed to the downside. Companies grew increasingly worried about the impact of a second wave of virus infections and the gradual withdrawal of government support, especially the furlough scheme. Brexit worries are also rising again, causing hesitancy in spending and investment decisions. While the third quarter will inevitably see a strong economic rebound, growth in the fourth quarter looks likely to be far less impressive.’

Brexit concerns of course persisted this week as well. Over the weekend, UK Prime Minister Boris Johnson and European Commission President Ursula von der Leyen agreed a month extension to Brexit talks.

While this boosted breakthrough hopes slightly and boosted Sterling, the British currency’s outlook remained full of uncertainties overall, as there is still much concern over whether or not a Brexit deal will be made.

JPY Exchange Rates Slide as Markets Cool from Friday Panic

On Friday, global markets were shocked by news that US President Donald Trump had tested positive for the coronavirus Covid19.

The Republican Party has been playing down the importance of face masks which can help prevent the spread of the virus, which has killed over a million people worldwide.

Markets panicked in response to Trump catching the virus. This is due to concerns over how it may impact the US Presidential Election and the US government if Trump is unable to campaign or govern.

Other key US government officials have also tested positive.

Investors piled into safe havens like the Japanese Yen on Friday as a result, though the Yen was unable to push GBP/JPY lower due to Brexit hopes boosting the Pound.

On Monday morning though, reports claiming that President Trump was doing well and could return to work this week helped markets calm slightly. This made it easier for the Pound to advance against the safe haven Japanese Yen today.

GBP/JPY Exchange Rate Forecast: Brexit and US Politics Remain the Focus

With UK-EU Brexit negotiations having been extended for a month, concerns about Brexit talks collapsing persist – but they are less likely to dominate market movement this week.

Instead, the Pound to Japanese Yen exchange rate is more likely to be driven by developments in global market risk-sentiment.

Global markets are focused on US President Donald Trump’s coronavirus illness. Any signs that Trump is recovering more smoothly will boost hopes for the election go ahead as planned, which would make the safe haven Japanese Yen less appealing.

Of course, if his condition worsens, safe haven demand and the Japanese Yen would instead strengthen.

Other factors that influence risk-sentiment, such as the status of the global coronavirus pandemic, will continue to influence the Pound to Japanese Yen exchange rate as well.

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