During early Asian trading on Tuesday, the GBP/JPY pair climbed to 191.20, marking a 0.40% increase for the day. The positive risk sentiment in the market is putting pressure on safe-haven currencies like the JPY. The Bank of England (BoE) is anticipated to maintain its interest rate at 5.0% in the upcoming September meeting.
The GBP/JPY pair is rebounding towards the 191.20 level after a two-day decline in the early European session today. The weakening of the Japanese Yen (JPY) is providing some support to the pair. The focus will be on Japan’s National Consumer Price Index (CPI) data release scheduled for Friday.
The Bank of Japan (BoJ) has predicted a strong economic recovery in Japan, which could lead to sustainable inflation reaching its 2% target. This outlook may prompt the BoJ to consider further rate hikes following last month’s decision, reflecting their effort to gradually reverse years of extensive monetary stimulus measures. This potential rate hike could bolster the JPY and pose a challenge for the GBP/JPY pair.
Conversely, the positive risk sentiment and reduced geopolitical tensions in the Middle East could weaken safe-haven assets like the JPY. Recent reports indicate that Israeli Prime Minister Benjamin Netanyahu has accepted a proposal aimed at resolving issues between Israel and Hamas. However, any escalation in geopolitical tensions could result in increased demand for safe-haven assets, benefiting the JPY.
Market speculation suggests that the Bank of England (BoE) is likely to maintain the interest rate at 5.0% in the upcoming September meeting. Rupert Thompson, IBOSS chief economist, commented, “The BOE is most likely to leave rates unchanged at their next meeting in September with the next cut having to wait until November.” This expectation could support the Pound Sterling (GBP) in the near term.
Risk Sentiment FAQs
What is Risk Sentiment?
Risk sentiment refers to the level of risk that investors are willing to take on during a specific period. In a “risk-on” market, investors are optimistic and more inclined to invest in risky assets. Conversely, in a “risk-off” market, investors prioritize safer assets due to concerns about future uncertainties.
Effects of Risk-On and Risk-Off Markets
In a “risk-on” market, stock prices typically rise, commodities (excluding Gold) see gains, and currencies of commodity-exporting nations strengthen. In contrast, a “risk-off” market sees an increase in Bond prices, a rise in Gold value, and appreciation of safe-haven currencies like the JPY, CHF, and USD.
Currencies Affected by Risk Sentiment
AUD, CAD, NZD, RUB, and ZAR tend to perform well in “risk-on” markets due to their heavy reliance on commodity exports. On the other hand, USD, JPY, and CHF are favored during “risk-off” periods for their safe-haven appeal and stability.
Key Safe-Haven Currencies
USD, JPY, and CHF are considered major safe-haven currencies due to their reliability in times of crisis. Investors often turn to these currencies for capital protection and stability during turbulent market conditions.