se appears to be the primary driver of the currency pair’s decline, with global stock markets falling amid rising concerns about the COVID-19 Delta variant and the potential impact on economic recovery.
The GBP/JPY exchange rate is one of the most volatile currency pairs due to the significant differences in the fundamentals of the British and Japanese economies. The pound sterling represents the economy of a developed country that has many ties to European countries, making it vulnerable to geopolitical events and changes in monetary policy. The Japanese yen, on the other hand, is a safe haven currency that benefits from a risk-off sentiment.
At the start of the week, the GBP/JPY began trading around the 164.10 level and continued to move higher until it reached a high of 163.98. This level proved to be a key area of resistance, with sellers stepping in and pushing the currency pair lower.
The risk-off sentiment was evident in global markets, with investors becoming increasingly worried about the spread of the Delta variant and its potential impact on economic activity. In the UK, daily COVID-19 cases have surged to their highest levels since January, leading to concerns about the government’s plan to lift all restrictions on July 19.
In Japan, the government is set to impose new restrictions on the Tokyo Olympics, which are due to start later this month. The move comes amid rising concerns about the potential for the games to become a super-spreader event.
Given these risks, investors are moving away from riskier assets and towards safe havens such as the Japanese yen. This has resulted in a decline in global equity markets, with the MSCI world index falling by 0.4% on Monday.
The decline in the GBP/JPY has been further exacerbated by technical factors, with the currency pair breaking below its 50-day moving average. This has triggered further selling pressure, with traders seeking to take profits or cut their losses.
Looking ahead, the main drivers of the GBP/JPY are likely to be the ongoing COVID-19 situation and monetary policy. In the UK, the Bank of England is expected to begin scaling back its bond-buying program later this year, which could provide some support to the pound. However, if the Delta variant continues to spread and results in further economic disruption, this could weigh on the currency.
In Japan, the Bank of Japan is expected to maintain its accommodative monetary policy, which could support the yen. However, the country’s economic recovery remains fragile, and any setbacks could result in an increase in risk-off sentiment and a further decline in the currency.
In conclusion, the GBP/JPY has been hit by a combination of risk-off sentiment and technical factors, with investors becoming increasingly worried about the spread of the Delta variant and its potential impact on economic activity. With the ongoing COVID-19 situation and monetary policy likely to be the main drivers of the currency pair, traders will need to stay alert to any developments that could impact these factors and adjust their positions accordingly.
