October 12, 2020 - Written by Toni Johnson
STORY LINK GBP to JPY Exchange Rate Slips Back as Investors Look to Safe Havens
Due to higher market demand for safe haven currencies, the British Pound to Japanese Yen (GBP/JPY) exchange rate is sliding back since markets opened this morning. Investors have been looking for safe havens amid concerns about China intervening in forex markets, as well as concerns that the US will not be able to agree on new fiscal stimulus policy before the US Presidential Election next month.
After opening last week at the level of 136.24, GBP/JPY saw impressive gains as it benefitted from market risk-aversion and hopes for a Brexit deal to be reached. GBP/JPY ultimately closed the week over a Yen higher, in the region of 137.83.
When markets opened this morning, GBP/JPY briefly jumped higher and touched on a high of 138.03. This was the best level for the pair in a month, since the pair’s early-September tumble.
However since then, GBP/JPY has been trending with a downside bias. While the pair has been able to avoid major losses, the Yen has been clawing back some ground on safe haven demand. At the time of writing, GBP/JPY trends near the level of 137.35.
GBP Exchange Rates Jittery as Negative Rate Concerns Persist
Last week saw the Pound jump higher as investors speculated that UK-EU Brexit negotiations were becoming more likely to lead to a Brexit deal over the coming month.
However, Brexit uncertainty remains. On top of this, Britain’s economy is expected to remain under pressure from the coronavirus pandemic, with the UK government expected to introduce new restrictions to combat the spread of the virus soon.
According to Analysts at ING Bank:
‘Prime Minister Boris Johnson is widely expected to announce tougher lockdown restrictions, with a new three-tiered system to be applied to allow more severe local lockdowns. Investors do, however, seem more relaxed about Brexit risk and it looks like Downing Street will try to find ways to soften this week’s 15 October deadline.’
Sterling was also a little weaker in reaction to signs that the Bank of England (BoE)
was still heavily considering negative interest rates. The BoE has been asking Britain’s commercial banks if they are ready for the possibility of negative rates.
In a letter to banks, it said:
‘As part of this work, we are requesting specific information about your firm’s current readiness to deal with a zero Bank Rate, a negative Bank Rate, or a tiered system of reserves remuneration – and the steps that you would need to take to prepare for the implementation of these.’
JPY Exchange Rates Benefits from Safe Haven Demand despite Dovish BoJ
The Japanese Yen is a safe haven currency. It is a currency that consistently benefits in times of global uncertainty, often regardless of Japan’s own economic developments.
Last week, rising hopes for US political uncertainty to calm after the US Presidential Election next month made investors more willing to take risks. This left the safe haven Japanese Yen weaker, and it was easier for GBP/JPY to advance.
This week though, there has been a limited rise in safe haven demand instead.
Investors are looking for safe havens again amid a rebound in last week’s movements.
It comes as hopes for US fiscal stimulus fade ahead of the election, but also due to news that the Peoples Bank of China (PBoC) has taken measures perceived as intervention in forex markets.
As the Chinese Yuan (CNY) fell and investors avoided risks, the Yen strengthened.
Yen investors have largely overlooked today’s Japanese news. The Yen remained relatively resilient, despite news that the Bank of Japan (BoJ)
could become even more dovish on monetary policy going forward.
GBP/JPY Exchange Rate Forecast: Brexit and Coronavirus Take Focus over UK Job Stats
Tomorrow will see the publication of this week’s most influential UK data.
Britain’s August job market report will be published. It will give investors a better idea over how UK jobs are performing amid the coronavirus pandemic.
If Britain’s job market has been hit even harder than expected by the pandemic, the Pound outlook could take a hit.
However, it’s possible that the latest coronavirus developments will overshadow the data, as the UK government is planning to introduce a new restriction system in order to limit the spread of the virus.
Reaction to Britain’s coronavirus situation, as well as any potential Brexit developments, are likely to drive the Pound in the coming sessions.
As for the Japanese Yen, it will be driven by safe haven demand. If US political jitters calm again, investors will be more willing to take risks again.
In this situation, safe haven demand would weaken and the Pound to Japanese Yen exchange rate would find it easier to recover today’s losses.
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TAGS: Pound Yen Forecasts