The Pound to Japanese Yen exchange rate was able hold near its best levels in a month, just below the key level of 130.00, on Tuesday afternoon as investors remained confident in a US election win for Democrat Hillary Clinton. The ‘safe haven’ Yen remained weak throughout the day with investors opting for its risky rivals and the US Dollar instead.
Pound (GBP) Easily Swayed by US Election Cross-Flows in Limp Trade Day
Despite Tuesday seeing some of Britain’s only influential ecostats this week, the Pound saw limp trade throughout the day, with market movements based almost entirely on US election bets.
This meant that the British currency was little affected by the day’s publication of September industrial and manufacturing production figures.
Industrial production disappointed, slowing from 0.7% to 0.3% year-on-year while manufacturing production hit a better-than-expected 0.2% despite being forecast to come in at -0.1%.
Investors largely brushed over these figures however, with the main supporting elements in Pound trade being ongoing hopes from Brexit-focused investors that UK MPs would fight for the country’s access to the EU single market.
Japanese Yen (JPY) Undermined as Markets Indulgent in Risk ahead of Election Results
As US citizens took to the polls throughout Tuesday’s American session, one currency’s poor performance has stood out this week – the Japanese Yen.
The Yen has become a firm-favourite ‘safe haven’ currency, being the safety net of choice when even the US Dollar is seen as too risky an investment. This also means the Yen is among the first currencies to plunge when markets indulge in risk.
Since Monday, markets have reacted to news that the FBI cleared Democratic Presidential nominee Hillary Clinton of criminal activity over her use of a private email server. This offered bets of a Clinton win a significant boost.
Clinton is viewed as the stable candidate for perceived market stability due to her ‘status quo’ economic and trade policies. As a result, her strong polling and betting figures have caused the US Dollar and risky currencies to soar this week.
This has left the Yen significantly weaker, allowing GBP/JPY to easily advance and hold near its highest levels this week.
GBP/JPY Forecast: Outcome of US Election will Inspire Yen’s Direction
With the Japanese Yen becoming increasingly tied to not just risk-sentiment but also the US Dollar, the results of Tuesday’s US election will have a direct impact on whether the Yen will soar or plummet for the remainder of this week.
This means the Yen will be the one in the drivers’ seat of the GBP/JPY exchange rate in the day ahead, as Sterling is likely to remain limp and get caught up in the cross-flows of more USD-correlated currency movements.
As for the potential election results, if Democrat Hillary Clinton wins the White House in the election, as predicted, it is likely markets will perceive an extended period of market stability ahead.
This will be a boon for the US Dollar initially but also for risky currencies, which will lead to further selloffs of ‘safe havens’ like the Japanese Yen and allow GBP/JPY to continue its advance.
However, a Trump election win is still seen as highly possible. With the shock of the Brexit vote still fresh on market minds, a surprise Trump win would send markets into a short to mid-term panic which would certainly cause a flood of Yen investment.
In this scenario, GBP/JPY could even be sent plunging to new 2016 lows of 125.00.