The British pound and the Japanese yen are two of the most widely traded currencies in the world, and they are often used as a barometer of global risk sentiment. As such, their exchange rate is closely watched by traders, investors, and policymakers alike. In recent trading, the pound has been under pressure against the yen, but there are several factors at play that could influence its direction in the coming weeks and months.
One of the key drivers of the GBP/JPY exchange rate is risk appetite. When investors are feeling confident and optimistic about the global economy, they tend to favor riskier assets like stocks and high-yielding currencies, such as the pound. Conversely, when risk aversion sets in, investors tend to seek safe havens like the yen. This is why the pound-yen pair is often seen as a barometer of global risk sentiment..jpg?width=1281&height=725&name=gbpjpy%20(1).jpg)
Another factor that is important to consider when analyzing the pound-yen exchange rate is the Japanese bond market. The Bank of Japan has been pursuing a yield curve control policy, which aims to keep the 10-year bond yield below 50 basis points. This policy has been successful so far, but it could come under pressure if interest rates rise around the world. If this were to happen, the yen would likely come under pressure as the Bank of Japan would have to print more yen to buy more bonds.
On the other side of the equation, the British pound has been supported by the Bank of England's commitment to fighting inflation. This means that the central bank is likely to keep monetary policy tight, which should support the pound. However, the ongoing banking crisis in the UK could pose a risk to the economy and the currency.
Looking at the technical picture, the GBP/JPY pair has been trading in a range in recent weeks, with the 200-day EMA acting as a key level of resistance. The moving averages are flat, which suggests that there is little conviction in either direction. However, as long as the trendline remains intact, the market is likely to move higher.
That being said, there are several levels of resistance to watch out for. The ¥165 level is likely to act as a hard ceiling, while the trendline support is all the way down at the ¥157.50 level. In other words, there is a lot of noise to navigate in the pound-yen market, and traders will need to be patient and disciplined in order to succeed
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Trading foreign exchange on margin carries a high level of risk, and may not be suitable for all investors. Before deciding to trade foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite.
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