Fears Over Loss of Global Growth Boosts Japanese Yen Demand
Market concern over the spread of the Wuhan coronavirus helped to keep the Pound Sterling to Japanese Yen (GBP/JPY) exchange rate on the back foot today.
With investors still seeing high odds of the outbreak shaving further growth off the global economy demand for the safe-haven Japanese Yen (JPY) remained elevated.
This bullish mood offset the impact of an underwhelming Japanese consumer confidence index, even though it failed to show any improvement on the month.
With Japanese consumers maintaining a generally gloomy outlook at the start of the year, though, the domestic economy still appears on track for a weaker first quarter gross domestic product performance.
Pound Fails to Capitalise on Rising UK House Price Index
Although the Nationwide house price index bettered expectations in January this was not enough to shore up Pound Sterling (GBP), meanwhile.
While the headline index saw price growth accelerate from 1.4% to 1.9% in the first month of 2020, though, this was still accompanied by a fresh warning over the wider health of the UK economy.
Robert Gardner, Chief Economist at Nationwide, cautioned that:
‘Indicators of UK economic activity were fairly volatile for much of 2019, but the underlying pace of growth slowed through the year as a result of weaker global growth and an intensification of Brexit uncertainty.’
Increasing jitters over Brexit and the likelihood of the two sides agreeing a fresh trade deal by the end of the year also kept the GBP/JPY exchange rate under pressure.
GBP/JPY Exchange Rate Set for Volatility on BoE Rate Announcement
Support for the Pound could weaken further as anticipation continues to mount ahead of tomorrow’s Bank of England (BoE) policy announcement.
Even though the odds of an imminent interest rate hike fell in the wake of January’s solid UK services PMI markets still see a risk of potential monetary loosening.
If BoE policymakers follow through on earlier dovish comments and deliver an interest rate cut this could leave the Pound trending lower across the board once again.
On the other hand, a steady rate decision could encourage GBP exchange rates to recover some of their lost ground as markets reprice the odds of future policy action.
As long as the BoE appears on course to cut rates at some point in 2020, however, any potential Pound gains are likely to prove limited.
Weak Japanese Data May Limit Potential for JPY Exchange Rate Gains
Demand for the Japanese Yen could weaken ahead of the weekend, meanwhile, if December’s raft of labour market and production data fails to impress.
Forecasts point towards a slight uptick in the unemployment rate, from 2.2% to 2.3%, with a fresh deterioration in both industrial production and retail sales.
Fresh evidence of weakness within the Japanese economy could limit the downside potential of the GBP/JPY exchange rate in the short term.
However, as long as market risk appetite remains elevated by global growth anxiety the Japanese Yen looks set to maintain a solid footing against the softened Pound.