Pound Sterling Japanese Yen (GBP/JPY) Exchange Rate Muted, UK Election Campaign Officially Underway
The Pound Japanese Yen (GBP/JPY) exchange rate was left muted today, with the pairing currently trading at around ¥140.3500 as British political parties embark on the UK election campaign trail and Brexit jitters edge back into the spotlight.
Brexit uncertainty returned to weigh on the UK currency as EU Brexit negotiator, Michel Barnier said negotiations on a future trading relationship with the UK would be ‘difficult and demanding’ as they ‘will not tolerate unfair competitive advantage’.
Commenting on this, senior currency strategist at Rabobank, Jane Foley said:
‘There is a lot of pressure to get a trade deal done in a very short period of time and Barnier is indicating that could be tough.
‘So for Sterling there is the possibility that a lot of good news that was built into the price in October could start to seep out.’
Pound (GBP) traders will be looking ahead to see what tone the Bank of England (BoE) strikes during its monetary policy meeting on Thursday.
As the bank has warned against further Brexit delays, political uncertainty ahead of the UK election has left a strong mark on business confidence and a slew of weak economic data have undermined confidence in the economy, there is a case for an unexpected BoE rate cut.
Japanese Yen (JPY) Left Flat as Service Sector Shrinks for First Time in Three Years
The Japanese Yen (JPY) was left under pressure today as data revealed the Japanese service sector shrank for the first time in three years.
October’s Jibun Bank services PMI slumped into contraction territory as typhoon Hagibis and a sales tax hike combined to weigh on consumer demand.
PMI data revealed that new order growth fell to a 17-month low and firms passed on higher burdens thanks to the tax hike to clients.
While a decline in the index was marginal, the country’s fragile economy has been held together by resilient consumption, so the reduction marks a red flag for the world’s third largest economy.
IHS Markit’s economist, Joe Hayes commented:
‘There are reasons to be positive as new orders continued to rise, despite the poor weather exacerbating negative effects from the sales tax hike. This contrasts with April 2014, the last time the sales tax increased, when new orders dipped into contraction territory. This would hint that the impact this time round has not been as detrimental on the Japanese economy.
‘That said, the short-term pricing and demand adjustments to the taxation change will likely dampen activity in the closing months of 2019. Unfortunately, it seems that the service sector may struggle to offset manufacturing weakness.’
US-China Trade Optimism Leaves Safe-Haven Yen Muted
The safe-haven Japanese Yen was left flat against Sterling on Wednesday as risk sentiment increased, pushing investors toward riskier assets.
The United States and China appear to be getting closer to a trade deal, with optimism rising on Tuesday following a report from the Financial Times which revealed the US had considered dropping some tariffs on Chinese goods.
Meanwhile, Beijing will push the US President to remove tariffs imposed in September as part of the ‘Phase One’ deal. Predictions are for a signed resolution later this month, news which triggered a risk-on market and saw investors moving away from safe-haven assets like the Japanese Yen.
Pound Japanese Yen Outlook: Will a Dovish BoE Weigh on GBP?
Looking ahead to Thursday, the Pound could slump against the Japanese Yen ahead of a Bank of England (BoE) monetary policy meeting.
While forecasts are for the bank to leave rates unchanged, if the minutes reveal overly dovish policymakers and downbeat signals about the British economy, GBP is likely to slide.
Meanwhile, the Yen could rise against Sterling following the release of Japan’s household spending data. If the figure increases more than expected in September it could provide the Yen with an upswing of support and see the Pound Japanese Yen (GBP/JPY) exchange rate slide.