British pound slips against USD, JPY and EUR after BoE event

• British pound to Japanese yen (GBP/JPY) exchange rate slumps after Bank of Japan (BoJ) policy decision
• Japanese yen (JPY) outperforming across the board
• Pound Sterling (GBP) slides against the euro (EUR) despite weak Eurozone fundamentals
• British pound to US dollar (GBP/USD) pair remains exposed to downside risks

After briefly hitting the USD 1.40 level on Thursday and USD 1.3957 on Friday, the British pound to US dollar (GBP/USD) exchange rate has tumbled heading into the weekend due to a combination of risk-off trade and concerns over the UK’s vaccination campaign.

One economist suggests that pound Sterling (GBP) is “floating on hot air” and warns that the UK currency is vulnerable to declines in the coming days.

Upwards momentum in the British pound to dollar (GBP/USD) cross cooled after the Bank of England (BoE) confirmed that interest rates would remain near zero and that the outlook for the UK economy remains “unusually uncertain.”

Although the BoE expects to upgrade its economic growth forecasts at the meeting in May, it stressed that it was too early to taper fiscal support. Comments from policymakers also did little to determine the direction of pound Sterling (GBP) exchange rates.

The Monetary Policy Committee (MPC) reiterated previous guidance concerning stimulus tools, stating that they would only raise interest rates above 0.1% if “evidence clearly showed” that economic recovery was underway.

While the UK central bank believes that bullish movement in GBP exchange rates has been warranted, as the announcement was relatively dovish, the March meeting failed to offer the British pound (GBP) significant support.

News that the UK will face a vaccine shortage in April due to a delivery delay from AstraZeneca’s manufacturing hub in India has also reduced the appeal of GBP.

Pound Sterling (GBP) has been sent lower across the board on Friday, with notable losses recorded against high yielding currencies, including the Canadian dollar (CAD).

The British pound to Canadian dollar (GBP/CAD) exchange rate has slumped by 0.2% ahead of the weekend and is trading at CAD 1.7352.

However, losses have been steepest against the US dollar (USD) and the Japanese yen (JPY), which is outperforming heading into the North American trading session.

Japanese yen surges after BoJ monetary policy statement

Despite the recent pick-up in safe-haven demand amid rising yields, the Japanese yen (JPY) has been relatively weak in currency markets due to the US dollar’s strength (USD).

However, the Japanese yen (JPY) has stormed higher in the European trading session on Friday, in the wake of Wednesday and Thursday’s dovish statements from the Federal Reserve and BoE and today’s Bank of Japan (BoJ) monetary policy decision.

The Japanese currency has even advanced against high-yielding assets such as the Canadian dollar (CAD) – one of the best-performers in recent weeks due to a bond yield spike and rising oil prices.

The Bank of Japan’s decision to hold interest rates at -0.1% and the yield-curve-control target for the 10-year bonds at 0.1% was widely expected. However, BoJ Governor Haruhiko Kuroda’s attempt to disguise an increase in the upper limit for 10-year yields as a “clarification” of existing policy begs more questions than answers.

Pantheon Macroeconomics Chief Asia Economist, Freya Beamish, said: “It’s totally a widening”,  and the central bank is somewhat offering investors who purchase or hold yen higher returns, which explains the bullish momentum in JPY.

The Japanese yen (JPY) has made notable gains against risk-sensitive rivals and low-yielding currencies such as the euro (EUR) and Swiss franc (CHF).

At the time of writing, the British pound to Japanese yen (GBP/JPY) exchange rate has slumped by 0.6% to JPY 150.75, while the euro to Japanese yen (EUR/JPY) exchange rate has fallen to JPY 129.425.

Pound Sterling (GBP) could reclaim losses next week, with UK labour data, inflation figures and PMI publications out between Monday and Wednesday.

However, Japanese PMI data is also out on Wednesday, and if these come in stronger-than-expected, this could lift the Japanese yen (JPY) higher in foreign exchange (FX) markets.

FX markets will also be focusing on vaccine and coronavirus developments, which could spell bad news for the euro (EUR), given that Europe’s vaccine rollout has faced further delays this month.

Euro weakness likely to persist due to laggard vaccine rollout

The euro (EUR) has regained ground against a host of major currencies this week; however, the single currency is forecast for further weakness due to the Eurozone’s darkening recovery outlook.

The British pound to euro (GBP/EUR) exchange rate has slumped by 0.2% to EUR 1.1651 during evening trade, due primarily to rising yields, weighing on riskier assets and increasing flows to safe-haven currencies.

GBP/EUR hit EUR 1.1715 earlier during the London session in the wake of better-than-expected GfK consumer confidence data, which rose by 7 points to -16 in March, beating consensus forecasts for a rise to -20.

UK government borrowing figures also came in slightly lower than feared. However, the Office for National Statistics (ONS) revealed that public sector debt had hit the worst levels on record for February.

That said, Europe’s third COVID wave, which appears to be forcing EU countries to extend or renew lockdown restrictions, has unnerved investors, and this should increase selling pressure on EUR.

Although GBP is being pressured by reports confirming 1.7 million vaccine doses expected to be delivered to the UK have been delayed, Health Secretary Matt Hancock insists that the country is on track to hit its target, which could limit losses.

The British pound vs euro (GBP/EUR) currency pair will continue to be driven by vaccine developments and economic data next week. Any indication that the EU will block exports to Britain or that the UK faces a vaccine shortage will undermine GBP strength.

US dollar (USD) performance will also cause some movement in the currency pair, as the euro’s (EUR) negative correlation with the greenback could trigger fresh selling pressure.

US dollar strengthens amid rising yields

The US dollar (USD) has erased almost all of its post-FOMC losses and is trading higher against most of its G10 currency rivals, except the Japanese yen (JPY).

Currently, the British pound to US dollar (GBP/USD) exchange rate is trading 0.5% lower at USD 1.3869, while the euro to US dollar (EUR/USD) pair is trading slightly lower at USD 1.1907.

Pound Sterling (GBP) gained during the Asian session, jumping to USD 1.3957 and briefly rose to USD 1.40 on Thursday ahead of the BoE statement but slipped soon after.

Today, any upside potential in GBP/USD has been capped by rising yields and confirmation of a delay in COVID vaccine supplies from AstraZeneca , which investors fear could derail UK Prime Minister Boris Johnson’s lockdown exit roadmap.

US Treasury yields have also surged to their highest levels since January 2020, spooking investors and strengthening the greenback.

Although EUR/USD is attempting to regain ground heading into New York trading hours, its advances will likely be undermined by European Central Bank (ECB) President Christine Lagarde statement warning of a euro area recession.

Escalating US-China tensions could also support US dollar (USD) exchange rates in the week ahead.