The past week has seen the Pound Sterling to Japanese Yen (GBP/JPY) exchange rate decline at a steady pace, with the initial high of 174.8454 gradually giving way to an ending low of 169.0965.
Bank of England (BoE) Damaged GBP Value
The Bank of England (BoE) can certainly be named as the main cause of Pound Sterling movement last week, with the central bank triggering broad-based GBP weakness.
In essence, instead of the result of the interest rate decision being a standard 8-1 vote against raising the UK interest rate, long-time hawk Ian McCafferty finally switched his vote and made it a dove-laden unanimous decision, something that panicked a large number of investors who abandoned the Pound in droves.
In some cases, economists decided to push their interest rate hike predictions well into 2018. Prior to this, the earliest expected interest rate hike was thought to be taking place after the EU referendum vote that would potentially come in June.
Sterling Fluctuates after Trade Balance Stats
While yesterday was generally marked by timid Sterling movement due to the handicap of no domestic data, today has seen the UK currency shake off initial gains due to the negative implications of the morning’s trade balance statistics for December.
An overall reduction in the current UK trade deficit was recorded but this news was countered by the ONS statement that the UK’s deficit relative to the rest of the world was the largest on record in 2015.
Japanese Yen Thwarts BoJ’s Attempt at Devaluation
Last week, the Japanese Yen advanced against the Pound due to (relatively) supportive domestic data; the January services and composite PMIs both rose on previous figures and in addition, the December coincident index also fared better-than-expected by falling from 111.9 to 111.2 instead of 111.
Although domestic data has by no means been unanimously supportive for the Yen this week, the currency has nonetheless risen prodigiously against competitors due to a global stock market catastrophe that has seen many of the world’s banks lose over -14% of their value.
This uptrend is likely to be contrary to the Bank of Japan’s wishes; the BOJ recently put the nation’s interest rate into a negative range in an effort to devalue the Yen, so a strong currency isn’t particularly positive in the eyes of the central bank.
This Week’s GBP/JPY Exchange Rate Forecast
For the present week, Pound Sterling/Japanese Yen exchange rate movement may occur as a result of tomorrow’s mixed forecast UK December Industrial and Manufacturing Production results, the NIESR GBP estimate for January (out on the same day) and Thursday night’s Japanese Foreign Bond and Stock Purchases for February.
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