Pound Yen (GBP/JPY) Exchange Rate Firms, Central Banks in Focus
The Pound Japanese Yen (GBP/JPY) exchange rate rose through today’s session, following a steep downturn overnight. Lending strength to the Pound (GBP) were bullish bets of further interest rate hikes from the Bank of England (BoE).
At the time of writing, GBP/JPY is trading at ¥183.273, remaining above this morning’s opening levels.
Pound (USD) Buoyed by BoE Tailwinds
The Pound rose against the Japanese Yen (JPY) today, bolstered by hopes of further monetary policy tightening from the BoE.
Overnight, Sterling dropped sharply against the Yen as risk-off sentiment exposed GBP to losses. As JPY optimism ramped up, Pound morale wavered.
Nevertheless, the British currency was able to reverse the majority of its losses as European trading dawned and investors’ expectations of more hawkish action from the Bank of England strengthened.
Last month, money markets were betting that interest rates would peak around 5.3% before the end of the year: now, the expectation is that they’ll reach 6.28% next March. Encouraging such estimates is rhetoric from the bank’s governor, Andrew Bailey.
Bailey told BBC reporters in an interview broadcast today that ‘[the BoE has to set the interest rate] to get (UK inflation) all the way down to 2%.’
Amid such speculation, Pound traders were unfazed by the S&P Global/CIPS construction PMI, which dropped to a five-month low of 48.9 in June, edging below economists’ forecasts and into contraction territory.
Japanese Yen (JPY) Investors Hope for BoJ Intervention
The Japanese Yen spiked in exchange rates overnight as investors mulled the likelihood of an intervention from the Bank of Japan (BoJ).
There has been no suggestion from the central bank’s governor, Kazuo Ueda, that the BoJ will tweak its current negative interest rate. Nevertheless, the fact the currency has depreciated to levels at which some sort of intervention is likely – according to economists – sparked excitement.
The current rate of price growth in Japan has led to rising wages, increasing public demand for inflation to be maintained at 2%. Moreover, Japan’s top financial diplomat confirmed that authorities were in close contact with overseas officials discussing monetary strategy.
One possibility is that the Japanese government will buy large amounts of yen, selling dollars for the Japanese currency. Bank officials are reluctant to alter their loose monetary settings, but acknowledge the potential for action.
At the BoJ’s June meeting, one board member was recording as saying: ‘The Bank should maintain the overall framework of monetary easing for the time being… That said, a revision to the treatment of YCC should be discussed at an early stage.’
Despite such tailwinds, however, JPY softened against the Pound through today’s European session as GBP gained strength. Losses were capped for the Yen, however, as the currency retained risk-off appeal; amid lingering fears of a UK recession, safe-haven currencies continued to pick up bids.
GBP/JPY Exchange Rate Forecast: UK Housing Data to Depress GBP?
The Pound Japanese Yen (GBP/JPY) exchange rate may weaken tomorrow, if Sterling corrects downwards with recession fears front-of-mind.
Exacerbating headwinds may be the release of Halifax’s June house price index; housing sales are expected to have decreased last month as mortgage rates in the UK become unaffordable for many prospective homeowners.
Elsewhere, confirmation of rising wages in Japan could lend strength to the Yen. A risk-off mood would also buoy JPY, given the currency’s safe-haven status.