GBP/JPY – Trading the options

Market Updates

Sterling Yen has picked up its bear trend again after having traded between 159.00 and 164.00 for the past 6 weeks. Last Friday price opened at 161.60, today’s open was at 156.18. Sterling seems to have picked up momentum to the downside again after recent comments from the Bank of England that negative interest rates may be necessary in the near future if the economy continues to falter.
Martin Weale, a Monetary Policy Committee member, stated that it may be necessary to cut rates again. He mentioned that there could be unwanted side effects if interest rates turned negative, implying there is that possibility.

However, it would seem that the Yen should depreciate more than the Pound given that interest rates in Japan are currently at minus ¾%. But markets move under the forces of expectations and not on facts alone. The Bank of England had been talking of raising interest rates and that had halted Sterling’s depreciation. Now that the possibility of higher interest rates is off the table, the Pound’s price looks like it has turned back to the prevailing bear trend.

There is also the fact that the Yen acts as a safe haven currency in times of market stress. In August 2008 when the stock market collapsed GBPJPY went from 214.09 to a low of 118.785 by January 2009 as the financial crisis unraveled.

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