Democratic Party Could Control US Senate, Boosting Risk-Sentiment and GBP/JPY Exchange Rate

GBP/JPY Exchange Rate Recovers as Safe Haven Japanese Yen Struggles to Hold Highs

For the first half of the week, Britain’s coronavirus woes weighed heavily on the Pound Sterling to Japanese Yen (GBP/JPY) exchange rate. Today however, speculation that the US could soon see more fiscal stimulus has been weighing on the Japanese Yen (JPY).

Following last week’s more bullish movement, GBP/JPY has been trending lower since markets opened this week.

GBP/JPY opened this week at the interbank level of 141.12. This wasn’t far from last week’s 4-month-best of 141.49.

GBP/JPY trended over a Yen lower for much of the first half of the week. Today though, GBP/JPY is attempting a rebound and currently trends in the interbank region of 140.48 – only about half a Yen lower.

Sterling’s (GBP) appeal remains limited for now, but more recovery could be ahead.

Pound (GBP) Exchange Rate Recovery Attempts Limited by Underwhelming UK Data

At the beginning of the week, the Pound was knocked lower by news that Britain would enter a third national lockdown.

Surging coronavirus infections across the country brought on the strictest lockdown since the beginning of the pandemic. It caused concern that Britain’s economy could be hit worse than expected by the pandemic this year.

Markets continue to digest the lockdown news. Today’s weaker than expected UK services PMI data limited the Pound’s potential to gain. It showed that Britain’s key services sector didn’t recover as much as hoped in December.

Japanese Yen (JPY) Exchange Rates Slide as Safe Haven Appeal Softens Again

The safe haven Japanese Yen has seen mixed movement in recent weeks. Rising hopes for a recovery from the coronavirus pandemic has weakened safe haven demand, while surges in coronavirus cases strengthened it again.

For much of the week so far, the Yen held gains against the Pound. This was because rising coronavirus cases and US political uncertainty boosted safe haven demand briefly.

However, safe haven demand is falling again today. As the US Democratic Party performs well in Georgia Senate runoffs, speculation that more US fiscal stimulus could be on the way is making investors more willing to take risks.

This is weighing on the safe haven Yen and making it easier for GBP/JPY to gain some ground today.

Pound to Japanese Yen (GBP/JPY) Exchange Rate Could Recover on US Stimulus Hopes

If the US Democratic Party does take control of the US Senate thanks to this week’s Georgia runoffs, it could give the incoming Joe Biden administration the power it needs to implement certain key policies.

This could lead to more significant fiscal stimulus from the US government to help boost the nation through the coronavirus pandemic.

In this scenario, markets could become more optimistic about economic recovery, and more willing to take risks. This would dent demand for safe haven currencies like the Japanese Yen.

As markets continue to digest the latest UK lockdown, the Pound may calm in the coming sessions as well.

The Pound to Japanese Yen (GBP/JPY) exchange rate could recover and even advance in the coming days if the UK situation shows any improvement.

Josh Jeffery

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