GBP/JPY Approaches Fresh Multi-Year Highs

On Monday of this week, the currency reached its highest levels since August 2009, trading modestly higher during the New York session and approaching price levels that haven’t been seen in over four years.

Japanese Yen Under Pressure

Last week, the Japanese Yen weakened after Finance Minister Taro Aso highlighted the need to keep foreign exchange intervention as a viable policy option. Aso mentioned in parliament that “Japan must have tools to counter speculative moves in the currency market.” This outlook on potential intervention led to a sell-off in the yen and sparked a rally in Japanese stocks. A softer yen benefits Japanese exporters by making their products more competitive overseas.

Recent positive economic news from the US, particularly the latest employment report, has also contributed to the downward pressure on the Japanese currency, raising expectations for a tapering of stimulus measures.

British Pound Strengthened by Favorable Data

The U.K. Office for National Statistics reported last week that Britain’s unemployment rate decreased to 7.6 percent in the three months leading up to September, its lowest level in over three years. This drop from 7.8 percent to 7.6 percent gets closer to the 7 percent mark, which could prompt the Bank of England to consider an interest rate hike.

Earlier this month, the Bank of England kept its asset-purchase target at £375 billion and maintained its benchmark interest rate at 0.5 percent. However, minutes from the Bank’s November meeting released on Wednesday indicated that policymakers are not rushing to increase interest rates. The minutes communicated a dovish sentiment, suggesting that as long as medium-term inflation expectations remain stable, there might not be an immediate need to raise the bank rate when the 7 percent unemployment threshold is reached.

Monthly Chart Analysis

Reviewing the monthly chart, we can observe that prices have nearly retraced to the previous highs from mid-2009, where a double top formation occurred.

BY Dan Blystone