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  • GBP/JPY came within a whisker of testing the February 2020 high at 144.96 on Friday.
  • The was supported by risk appetite on Friday, but the UK’s vaccine progress has been a tailwind these last weeks.

GBP/JPY has seen a second day of upside on Friday, with this latest bout of upside primarily driven by a weakening of the Japanese yen as a result of the market’s broadly risk-on tone; stocks markets, industrial commodities, crude oil prices and risk-sensitive currencies are all performing well whilst the safe-haven US dollar is lower. This is weighing on the yen today and boosting GBP/JPY

As a result, GBP/JPY has been making fresh highs for the year and recent came within a whisker of a test of the February 2020 high at 144.96 and the psychological 145.00 level. The strong gains seen on Thursday and Friday this week mean that GBP/JPY is now more than 2.5% higher already on the year.

As a recap; in terms of why GBP rallied on Thursday; a less dovish than expected BoE monetary policy meeting on Thursday saw GBP surge higher; the bank left interest rates and the size of its QE programme unchanged, but its economic projections were a little more optimistic and, though the bank signalled that negative rates would be ready in the next six months, that categorically should not be taken as a signal that the bank is definitely planning on using them.

Driving the day

As noted, risk-on is the primary factor driving GBP/JPY higher on the final trading day of the week. In terms of why markets are risk-on; today’s US jobs report, though weak, is being taken as a positive given that it increases pressure on the US Congress to act aggressively with stimulus (a strong report might have reduced their sense of urgency). Of course it will also encourage continued dovishness from the Fed, the combination of which is positive for risk assets and a negative for the likes of JPY.

UK news flow remains broadly positive, however; the country has now vaccinated nearly 11M people and is averaging about half a million jabs per day. The latest news suggests the country will be able to offer jabs to all its adult citizens by June. This schedule is far ahead of the US and even further ahead of the EU. This has been a tailwind for sterling, which is also being helped by further confirmation that the third Covid-19 wave has peaked and the economy will be on a path back towards reopening as opposed to tighter restrictions (like in Europe).

GBP/JPY key levels