- The GBP/JPY struggles to gain significant traction on Tuesday in mixed signals.
- The hopes of a commercial agreement undermine the jpy of safe refuge and offer support to the crossing.
- A modest strength of the USD weighs on the GBP and limits the bullish potential of cash prices.
The GBP/JPY crossing fights to capitalize on its modest rebound in the Asian session and currently trades just below the Round Brand of 191.00, almost unchanged in the day. However, the fall remains supported by the appearance of some sales around the Japanese Yen (JPY), which justifies a certain caution for the bearish operators.
Despite the mixed signs about the state of the negotiations between the US and China, investors remain optimistic about the possible unwinding of commercial tensions between the two largest economies in the world. This continues to support a positive risk tone, which undermines the demand for traditional assets of safe refuge, including JPY, and should act as a wind in favor for the GBP/JPY crossing.
Meanwhile, operators have delayed the expectations of an immediate increase in interest rates by the Bank of Japan (BOJ) due to the growing economic risks derived from US tariffs. However, the signs of expanding inflation in Japan keep the door open for a greater hardening of politics by the BOJ later this year. This could stop JPY bassists to make aggressive bets before the Boj meeting this week.
The Japanese Central Bank is scheduled to announce its decision on Thursday and is expected to maintain stable interest rates. Therefore, investors will examine the updated economic projections of the BOJ in search of clues about the schedule for the next rate increase, which will play a key role in the influence of JPY’s pricing dynamics in the short term and will provide a new impulse to the GBP/JPY crossing.
Meanwhile, the persistent geopolitical risks derived from the prolonged war between Russia and Ukraine could contribute to limit the losses of the JPY. The sterling pound (GBP), on the other hand, is pressed by the appearance of some purchases around the US dollar (USD). This suggests that any upward intimate movement at the GBP/JPY crossing could be seen as an opportunity for sale and remain limited.
FAQS risk feeling
In the world of financial jargon, the two terms “appetite for risk (Risk-on)” and “risk aversion (risk-off)” refers to the level of risk that investors are willing to support during the reference period. In a “Risk-on” market, investors are optimistic about the future and are more willing to buy risk assets. In a “Risk-Off” market, investors begin to “go to the safe” because they are concerned about the future and, therefore, buy less risky assets that are more certain of providing profitability, even if it is relatively modest.
Normally, during periods of “appetite for risk”, stock markets rise, and most raw materials – except gold – are also revalued, since they benefit from positive growth prospects. The currencies of countries that are large exporters of raw materials are strengthened due to the increase in demand, and cryptocurrencies rise. In a market of “risk aversion”, the bonds go up -especially the main bonds of the state -, the gold shines and the refuge currencies such as the Japanese yen, the Swiss Franco and the US dollar benefit.
The Australian dollar (Aud), the Canadian dollar (CAD), the New Zealand dollar (NZD) and the minor currencies, such as the ruble (Rub) and the South African Rand (Tsar), tend to rise in the markets in which there is “appetite for risk.” This is because the economies of these currencies depend largely on exports of raw materials for their growth, and these tend to rise in price during periods of “appetite for risk.” This is because investors foresee a greater demand for raw materials in the future due to the increase in economic activity.
The main currencies that tend to rise during the periods of “risk aversion” are the US dollar (USD), the Japanese yen (JPY) and the Swiss Franco (CHF). The dollar, because it is the world reserve currency and because in times of crisis investors buy American public debt, which is considered safe because it is unlikely that the world’s largest economy between in suspension of payments. The Yen, for the increase in the demand for Japanese state bonds, since a great proportion is in the hands of national investors who probably do not get rid of them, not even in a crisis. The Swiss Franco, because the strict Swiss bank legislation offers investors greater protection of capital.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
