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GBP to JPY Exchange Rate Capitalising on Market’s Coronavirus Vaccine Optimism

February 16, 2021 - Written by Minesh Chaudhari

Despite a lack of surprising Japanese data lately, the British Pound to Japanese Yen (GBP/JPY) exchange rate has been surging higher. The Pound continues to capitalise on the global market’s coronavirus recovery hopes, while the Japanese Yen tumbles as investors see less reason to hold onto safe havens. Inflation and PMI data could influence movement later in the week, but coronavirus vaccine news is likely to remain the focus.

Since markets opened this week, GBP/JPY has already seen stronger gains than last week.

GBP/JPY opened last week at the level of 144.75 and gained around half a Yen throughout the week, ultimately closing higher at the level of 145.37.

This week’s movement has been even more bullish, as GBP/JPY has already sustained over a Yen of gains.

Earlier this morning, GBP/JPY touched on a one year high of 147.29, before slipping slightly and trending closer to the level of 146.66 at the time of writing.

GBP Exchange Rates Continue to Capitalise on Market’s Coronavirus Vaccine Hopes

The Pound remains one of the market’s most appealing major currencies, and its continued strength reflects continued rise in confidence that the global economy will recover from the coronavirus pandemic over 2021.

Almost 25% of Britain’s population has received the first dosage of the vaccine now, keeping Britain’s vaccine programmes well ahead of those in other major economies.

Speculation and hopes that Britain will be one of the first major economies to recover from the pandemic have been the primary cause of broad Pound appeal in recent weeks, and this continues to boost the Pound today.

According to Strategists at ING, the Pound’s appeal is also partially due to its volatility:

‘Sterling continues to push ahead as the dividend of rapid vaccination and the currency’s relative high beta among the three majors (USD, EUR and JPY) both help in the current reflationary environment,’

Ricardo Evangelista, Senior Analyst at ActivTrades, said:

‘However, the pound is finding support amidst a global rise in investor confidence, that is proving positive for risk related assets, and because of the success of the British vaccine rollout, which has placed the country ahead of its peers and in pole position for the post-pandemic economic rebound.’

On top of vaccine optimism, softened UK-EU post-Brexit trade tensions are also supporting the Pound’s appeal this week.

JPY Exchange Rates Remain Unappealing amid Market Optimism

The Japanese Yen is a safe haven currency; it often benefits in times of global market uncertainty.

However this also means that it often weakens when markets are becoming more optimistic. With coronavirus recovery hopes rising in global markets, investors are becoming increasingly confident again and this is leaving traders with little reason to buy the Yen.

Recent Japanese data has been too mixed to offer the Yen much support either, and the Yen’s movement has been primarily inspired by safe haven demand as well as US Treasury yields.

According to Francesco Pesole, Currency Strategist at ING:

‘The Yen has been the worst performing currency of 2021, with its negative correlation to US Treasury yields proving to be the biggest dampening factor,

When adding weak safe-haven demand as the global recovery gathers pace, some additional trimming of Yen net long positions may be on the cards.’

GBP/JPY Exchange Rate Forecast: Bullishness Could Persist Even if Upcoming Data Surprises Investors

As the Pound to Japanese Yen exchange rate continues to capitalise on the market’s optimism over coronavirus vaccines and economic recovery, bullishness in the pair may be set to persist.

The Japanese Yen, at least, may struggle to recover and strengthen in these conditions. Higher demand for risk-taking is likely to keep the safe haven Japanese Yen under pressure.

Upcoming Japanese data may not cause much shift in movement either.

Wednesday’s Asian session will see the publication of Japan’s January trade balance and machinery orders stats. Then, Friday’s session will follow with key inflation stats and PMI projections.

Japanese inflation and PMI stats would need to be much higher than expected to influence Japan’s economic outlook and make the Yen more appealing.

On the other hand though, some analysts believe the Pound’s bullishness may not last too much longer. Analysts at ING said:

‘with the GBP showing signs of a modest overvaluation based on our short-term financial fair value model, the pace of near-term appreciation may slow from here.’

As a result, weaker than expected upcoming UK retail or PMI data could cause a recoil in the Pound to Japanese Yen (GBP/JPY) exchange rate.
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