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  • GBP/JPY has been on the back foot with GBP struggling given lockdown concerns and JPY bid amid risk-off.
  • The pair has slipped back from three-month highs above 141.00 to below the 140.00 level.

GBP/JPY has been on the back foot for the most part during Monday’s session, slipping below the 140.00 level after hitting three-month highs above 141.00 early on during the Asia Pacific session. The pair currently trades with losses of around 0.8% or over 110 pips.

GBP underperforms as country moves towards tougher lockdown

UK PM Boris Johnson will address the nation at 20:00GMT and is expected to announce that the whole of England will be moved into tougher Covid-19 lockdown restrictions. The government’s chief medical officers have reportedly recommended a move to alert level 5, which means there is a “material risk of healthcare services being overwhelmed” which necessitates extremely strict social distancing. An ITV reported tweeted that the new measures will be akin to moving the whole nation into Tier 4, closing schools and banning team games in parks. The news comes on the back of the latest daily UK Covid-19 numbers; a record 58,784K cases were reported on Monday and daily deaths were 407.

The news is clearly having an impact on GBP, which the worst performing G10 currency on the day. Final Markit Manufacturing PMI numbers for December, released early during the European session, were a little stronger than the preliminary numbers, but have failed to lift the mood for sterling. A risk of bias to trade, as markets take some risk of the table ahead of key events later in the week is also harming risk-sensitive sterling vs the likes of USD, JPY and CHF (and EUR).

JPY in demand alongside other safe-haven currencies

The general risk-off mood to trade on Monday is helping safe-haven currencies such as JPY outperform (only EUR and CHF are doing better in the G10 on Monday). Meanwhile, Japanese manufacturing PMI rose to 50.0 in December, its highest level since April 2019, which might instill some confidence in the Japanese economic recovery, were it not for concerns that the Japanese government might be about to declare another national emergency to combat the spread of the virus. Given JPY status as a safe haven currency, however, this domestic doom and gloom might actually be helping.