Market Update – GBP / JPY
Despite sterling’s recent strength against most other currencies, it has declined against the Yen in January as concerns over possible monetary tightening in China help to drive investors away from higher risk currencies. Investors who had sold Yen and US dollars in exchange for “high yielders” are now reversing those positions, causing the Yen and Greenback to strengthen. Another factor behind these moves is the dramatic stock market weakness that began on January 20th, wiping around 5% off the Dow Jones Index in three days. Just as we saw during the credit crisis in late 2008, investors flock toward these “safe haven” currencies when other asset prices fall.
So it’s primarily risk sentiment that’s driving this market at present, whereas the dominant themes in other sterling crosses have been more focused on the UK’s economic outlook relative to peers. Yesterday’s fourth quarter GDP figures confirmed that the economy crept out of recession at the end of 2009, but only managed 0.1% growth, well below the 0.4% most analysts were expecting. Sterling fell on the news.
Sterling managed yet another bounce from the key 140.00 level in November, but went on to make a “lower high” at 150.00. So while the major support at 140.00 is holding for now, the highs are getting lower, which indicated an underlying downward pressure. Unless we see a dramatic catalyst for sterling strength we feel that this market is likely to trade lower over the short and medium term.
Any opinions expressed in this document are those of TorFX
analysts. Any analysis and/or forecasts provided are aimed at
helping clients understand market conditions and developing trends.
Clients are wholly responsible for their own trading
decisions.
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