GBP/JPY, USD/JPY Exchange Rates Soften on Geopolitical Tension
The Pound Sterling to Japanese Yen (GBP/JPY) exchange rate was holding steady on Tuesday in spite of the fact that the Pound drifted lower against the majority of its most traded currency counterparts on Tuesday.
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On Monday Sterling managed to display resilience in spite of disappointing manufacturing data for the UK, but it was a different story today.
Even with UK Construction PMI coming in well above expected levels the Pound shed over 0.5% against the US Dollar (GBP/USD) and more than 0.4% against the Euro (GBP/EUR).
Investors began to ditch the Pound ahead of Thursday’s Bank of England (BoE) interest rate decision as they focused on the prospect of potentially slowing UK economic growth, the likelihood of the first interest rate increase not occurring until 2015 and external economic pressures.
However, the Pound’s losses against the Yen were limited as the Japanese currency was pressured by the expectation that Shinzo Abe, Japan’s Prime Minister, will appoint Yasuhisa Shiozaki (an old ally of his) to head up the Health Ministry and take charge of the reforms to the Government Pension Investment Fund.
The GBP/JPY exchange rate was little changed as the European session progressed, moving between highs of 173.9500 and lows of 173.2400.
However, the USD/JPY exchange rate put on a more impressive performance, gaining 0.5% to trade within touching distance of a five-year high.
As commented by one locally-based industry expert; ‘Media reports that Prime Minister Abe is considering appointing Shiozaki as the health, labour and welfare minister are fuelling expectations for GPIF reform, helping lift Japanese stocks and spurring Yen selling. Shiozaki has been actively putting forward suggestions on GPIF reform.’
The USD/JPY exchange rate was also trending in a stronger position ahead of the publication of the US Markit Manufacturing PMI and ISM Manufacturing figures. US Construction Spending figures will also be of interest.
The relationship between the Pound and its peers is a curious one today. It could be considered that the weakness in the British currency is being caused by speculation surrounding the upcoming BoE policy meeting. Last month two of the nine member Monetary Policy Committee voted in favour of hiking interest rates, but since then UK reports (particularly domestic wage growth data) have disappointed, leading some investors to bet that the two policy makers will reconsider their previously hawkish attitudes this time out.
The Pound may also be feeling the pressure ahead of the publication of tomorrow’s UK Services and Composite PMI. The services sector accounts for 70% of economic growth so this gauge is the most influential.
Today’s UK Construction PMI showed an unexpected increase in August. Instead of falling from 62.4 to 61.5 as economists anticipated, the gauge jumped to 64.0 – a seven month high.
However, while the headline figure was positive, there were some negative comments in the accompanying statement from Markit economist Tim Moore.
Moore stated; ‘While some survey respondents noted optimism that additional supplier capacity will come online over the near term, construction companies were generally less sanguine in relation to their staff hiring difficulties, reflecting concerns about protracted growth pains in this area.’
GBP/JPY Exchange Rate Forecast
The Pound Sterling to Japanese Yen exchange rate is likely to continue trending in its present range for the rest of the European session.
Overnight volatility in the pairing could be caused by Japan’s Markit/JMMA Composite and Services PMI. The UK’s BRC Shop Price Index and Halifax House Price reports will also be of interest.
As Wednesday progresses the UK’s Services and Composite PMI’s will be the main causes of currency market movement.
The Pound Sterling to Japanese Yen and the US Dollar to Japanese Yen exchange rates have softened on Wednesday as investors seek safe-haven currencies in light of the mounting tension between Russia and Ukraine.
On Tuesday, news was leaked that the Russian President Vladimir Putin had revealed to Jose Manuel Barroso that his forces could conquer Kiev in two weeks if he told them to do so.
Moscow has not denied the accusation but rather they say the comments were taken out of context.
As the rhetoric of war becomes ever present in the media traders are less inclined to invest in risky currencies, choosing instead the safe-haven qualities found with the Yen.