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Pound Japanese Yen (GBP/JPY) Exchange Rate Sheds Further Ground on Weaker Monthly UK Growth Rate

November 12, 2020 - Written by Frank Davies

Pound Japanese Yen Exchange Rate Slides as UK Gross Domestic Product Misses Forecast

The Pound Sterling to Japanese Yen (GBP/JPY) exchange rate came under renewed pressure in the wake of the third quarter UK gross domestic product report.

Although the headline quarterly growth rate surged to a record high of 15.5% this was not enough to encourage any particular demand for the Pound.

As forecasts had pointed towards a higher degree of quarterly growth the figure ultimate disappointed investors, especially as September’s monthly reading also fell short of forecast.

The monthly growth rate eased from 2.2% to 1.1% in September, highlighting a continued loss of economic momentum at the end of the quarter.

With momentum showing signs of fading even before the implementation of renewed lockdown conditions this cast fresh doubt over the health of the UK outlook, raising bets of a fourth quarter slowdown.

Recovery in Japanese GDP Set to Support Japanese Yen Exchange Rates

Support for the Japanese Yen showed signs of recovery, meanwhile, as the week’s previous bout of market risk appetite continued to fade.

With investors increasing weighing up the realities of the likely timeline for any viable Covid-19 vaccine doubts over the strength of the global outlook began to pick back up.

This allowed JPY exchange rates to recover some of their lost ground, benefitting from the renewed appeal of safe-haven assets.

Demand for the Japanese Yen may pick up further over the weekend if the preliminary third quarter Japanese GDP demonstrates renewed growth for the economy.

If the quarterly growth rate can return to positive territory, bouncing back from the second quarter’s -7.9% contraction, this could see the Yen trending higher across the board.

However, any signs of lingering weakness within the report may still put a dampener on the Japanese Yen, offering the GBP/JPY exchange rate some degree of support.

Brexit Deal Worries Forecast to Keep GBP/JPY Exchange Rate Under Pressure

Growing doubts over the ability for the UK and EU to agree a draft Brexit deal before next week’s deadline could keep the Pound under pressure, however.

As key issues are still said to remain between the two sides the lingering risk of a no-deal scenario could see GBP exchange rates trending lower across the board.

Unless markets see evidence that talks are moving forward, edging towards an agreement, the appeal of the Pound looks set to weaken further.

With the UK economy already under significant pressure heading into the end of the year any major resurgence in Brexit uncertainty could increase the risk of a fourth quarter recession, leaving the GBP/JPY exchange rate exposed to selling pressure.
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