Month-End Market Rout Knocks Pound Japanese Yen Exchange Rate from 2-Year-Peak

Pound Japanese Yen Exchange Rate Slumps as Markets React to Surging Bond Yields 

After weeks of surging higher, the Pound Japanese Yen (GBP/JPY) exchange rate has had the wind knocked out of its sails since yesterday. Investors are selling the strong Pound (GBP) from its best levels while the Japanese Yen (JPY) benefits from market risk-off movement. 

GBP/JPY opened this week at the interbank level of 147.86, and spent much of the week advancing. 

Yesterday, GBP/JPY’s interbank rate touched on a high of 150.42. This was the best level for GBP/JPY in over two years, since 2018. 

Since then though, GBP/JPY has been tumbling back. At the time of writing on Friday, GBP/JPY trends closely to the week’s opening levels again. 

The Pound outlook remains strong however. Unless upcoming Japanese data beats expectations, investors may continue to buy the Pound to Japanese Yen exchange rate once the current risk-off movement cools. 

Pound (GBP) Exchange Rate Gets Knocked but Outlook Still Strong 

Investors have been selling the Pound from its best levels since yesterday, following weeks of surging gains for the British currency. 

There are a couple of reasons for this end of month selloff. In part, it is due to investors taking profit in the Pound’s recent rally, selling the British currency from its best levels in months or even years against some rivals. 

The other reason for Sterling’s drop is a rout in assets correlated to risk. Yesterday saw bonds drop across the globe, leading to surging yields and making investors rush to safer havens. 

Investors have been betting on the Pound falling in a short space of time. According to Jeremy Stretch, Head of G10 FX Strategy at CIBC Capital Markets: 

‘The correction came as the UK curve 2-10 flattened by 2bp yesterday and short Sterling rallied into the close.’ 

Japanese Yen (JPY) Exchange Rate Benefits from Market’s Risk-Off Rush 

Yesterday saw investors rushing to safer havens, amid a rout of bonds, shares and risk-correlated assets across the global market. 

As the Japanese Yen is a safe haven currency that benefits in times of global economic uncertainty, it has been able to benefit from this market movement. 

However, the Japanese Yen has not been able to capitalise too much on the movement as rising US yields typically benefit its rival the US Dollar (USD) more. This has limited the Japanese Yen’s gains against the Pound today. 

Today’s Japanese housing starts report from January was worse than expected and had no notable impact on JPY trade. 

Pound Japanese Yen (GBP/JPY) Exchange Rate Losses May be Temporary 

The Pound to Japanese Yen exchange rate is tumbling today, but the Japanese Yen’s potential for further gains is not too strong. 

The Japanese Yen outlook is mixed as Japan’s economy continues to be hit by the coronavirus pandemic, and pandemic recovery hopes are benefitting other currencies over the Yen. 

If the market’s overall optimistic movement resumes next week, then the Japanese Yen will likely resume its weak trend as a safe haven currency. 

The Yen has more chances of avoiding losses and holding its ground if next week’s Japanese data impresses investors. 

Monday will see the publication of Japanese manufacturing PMI data, followed by unemployment rate results on Tuesday. Consumer confidence data from February could be influential on Thursday. 

The UK economic calendar is relatively quiet next week, with only February PMIs being published. That means the Pound Japanese Yen (GBP/JPY) exchange rate is likely to keep trending on coronavirus news and market sentiment. 

Josh Jeffery

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