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Pound Japanese Yen (GBP/JPY) Exchange Rate Recovers Ground Thanks to Covid-19 Vaccine Optimism

January 8, 2021 - Written by Frank Davies

Covid-19 Vaccine Optimism Lifts Pound Japanese Yen (GBP/JPY) Exchange Rate

Buoyant market risk appetite helped to keep the Pound to Japanese Yen (GBP/JPY) exchange rate on a positive footing heading into the weekend.

While some anxiety over the spread of the new Covid-19 mutations lingered this was overshadowed by news that the Pfizer vaccine has shown some effectiveness against the strains.

Although it remains to be seen whether these initial results hold up markets still took a positive cue from the report, leaving the safe-haven Japanese Yen on the back foot once again.

With Japan itself also tightening Covid-19 restrictions once again fears of a sustained economic slowdown also picked up, adding to the bearish mood of JPY exchange rates on Friday.

Stronger Leading Economic Index Fails to Shore up Japanese Yen

Although November’s Japanese leading economic index bettered forecasts, defying expectations of a slowdown to rise from 94.3 to 96.6, this failed to life the Yen, meanwhile.

Fears that the Japanese economy could face a fresh slowdown in the first quarter, thanks to domestic disruption and weakened international trade, weighed heavily on JPY exchange rates.

With investors increasingly confident that the US could soon see an expansion of its fiscal stimulus package, once president-elect Joe Biden takes office, there appeared little reason to favour the Yen.

If the Chinese inflation rate returns to a positive reading for December on Monday this could put additional pressure on JPY exchange rates.

Evidence that the world’s second-largest economy continued to shake off the impact of the pandemic in the final months of 2020 could prompt another bout of market risk appetite.

As long as investors see cause for optimism over the global economic outlook and the prospect of a 2021 recovery the mood towards the Japanese Yen looks set to sour further.

Lack of UK Data Releases Limits Potential for Further GBP/JPY Exchange Rate Gains

With fresh UK data releases thin on the ground next week the GBP/JPY exchange rate could see limited rallying points, however.

In the absence of any evidence of resilience within the UK economy worries over the Covid-19 crisis look set to dominate the outlook, especially if the government appears on track to fall short of its vaccination target.

Any indication that the rollout of Covid-19 vaccines could take longer than markets currently anticipate may well leave the Pound exposed to another wave of selling pressure.

Comments from Bank of England (BoE) deputy governor Ben Broadbent are unlikely to have any major impact on the GBP/JPY exchange rate on Tuesday.
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