The Pound Japanese Yen exchange rate slipped on Tuesday after edging higher on Monday. Fresh concerns about the UK’s Brexit process as well as slipping demand for the US Dollar left the Yen in a stronger position as GBP JPY fell back from 135.56 to 134.
Pound (GBP) Undermined by Slowing Inflation and Fresh Brexit Fears
After rallying strongly for the best part of a week on hopes that Donald Trump’s US Presidency election could be a good thing for UK-US trade relations, Sterling fell back on Monday in largely corrective trading.
However, Tuesday’s session left a double whammy of concern for the British economy which caused the Pound to drop with more force.
As well as news that the UK government still had no concrete Brexit plan, an underwhelming UK Consumer Price Index (CPI) score for October weighed heavily on Tuesday’s Sterling trade.
Traders had been hoping for UK inflation to continue rising due to the low Pound in hopes it may influence the Bank of England (BoE) to tighten monetary policy slightly. However, the 0.9% year-on-year result indicated that consumer prices weren’t increasing as fast as expected.
Japanese Yen (JPY) Recovers from GBP JPY Falls on ‘Safe Haven’ Demand
The Pound Japanese Yen exchange rate surged since last week’s Trump US election win as traders speculated excitedly about the possibility of a short-term economic boost for the US economy.
As the Japanese Yen is commonly correlated with ‘safe haven’ demand as well as the US Dollar itself, USD’s strength over the last week has left the Yen in free-fall with most traders avoiding ‘safe havens’ to make the most of the week’s Trump-related market movements.
This has proven encouraging for Japan’s government and businesses, which had been negatively affected and pressured by the Yen’s overvaluation in recent months.
However, as Trump bullishness began to wear down on Tuesday, the Yen recovered some of the losses shed against major rivals like the Pound.
Pound Japanese Yen Exchange Rate Long-Term Forecast: An Overvalued Yen is Still Likely
The biggest market bullishness of Trump’s US election win appears to be behind the Pound already, meaning its movement in the coming days and weeks could be a lot more familiar with limited gains on data and sharp movements on Brexit news.
Now that it has been indicated to investors that the UK government lacks a concrete Brexit plan, this will increase hopes that the UK government’s Supreme Court challenge on Article 50 fails.
Britain’s High Court recently ruled it unconstitutional for the UK government to begin the formal Brexit process without some kind of Parliamentary process – news which bolstered Sterling considerably. The government challenged this ruling and it will be elevated in Supreme Court in early-December.
If the government wins the appeal and the right to activate Article 50 by itself, the Pound will plummet due to a lack of market faith in the government’s Brexit plans.
If the appeal fails, investors will remain hopeful that MPs will fight for access to the EU’s single market as part of Brexit negotiations.
The Yen, on the other hand, could see investors returning to it in the coming weeks as investors begin to mull over the potential uncertainty and risks of a Trump-led US economy, especially if Trump reasserts his intentions to be more protectionist on trade.
Yen trade has become incredibly risk-correlated, surging in times of high market uncertainty when traders seek out ‘safe havens’. Uncertainty in the futures of major economies like Britain and the US will likely prevent the Yen from losing too much value in the mid to long-term, which could be a problem for the Japanese government.
At the time of writing, the Pound Japanese Yen exchange rate traded at around 134.43, while the Japanese Yen Pound exchange rate trended in the region of 0.0074.
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