GBP/JPY: Financial markets stress weighs heavily on GBP – MUFG

Analysts at MUFG Bank, still hold the idea that the pound will drop further against the Japanese yen. They have a limit target for GBP/JPY at 127.00. 

Key Quotes:

“We still favour a short GBP/JPY trade idea to reflect building downside risk for the global economy from the broadening shutdowns of major economies and sharp tightening of financial conditions. Similar to during the Global financial Crisis, the GBP has started to weaken sharply alongside other high beta currencies.”

“London’s role as a global financial centre and the UK’s sizeable current account deficit eaves it vulnerable to global financial market instability. The BoE has also been aggressively easing policy undermining support for the pound. It has resulted in the GBP becoming more deeply undervalued but it can still become even cheaper in a crisis.”

“The low yielding JPY should continue to outperform. While looking at USD/JPY gives the impression that the yen is performing poorly, it remains close to unchanged versus the dollar since the COVID-19 crisis began. So it’s been as good as the dollar in this crisis.”

“After recent JPY gains, we have lowered the S/L and target to 133.00 and 127.00 respectively.”