The Great Britain pound today reached its lowest value against the Japanese yen since 11th of July, 2006, continuing the strong bearish trend that has started during early November 2007.
Since the pound has been a carry trade favorite long currency for a long time, it’s gained a lot of “overweight” against its Japanese counterpart — yen, and it now has a great potential in falling down as the carry trade positions are being closed by the majority of the Forex investors.
GBP/JPY touched a 209.99 level today and then retraced back from the psychologically strong 210.00 support level. But it is still trading with a daily loss of more than 0.2% making it a 4th straight bearish trading day for this pair.
There are other reasons for pound to depreciate against yen, even without the problems with carry trade. The Great Britain pound is experiencing rather bad times with the economy growth slowdown and the real estate sector slumping. Bank of England has to reduce the interest rates in order to stimulate the investments. But the lower interest rate makes the pound less attractive as a currency.
Another reason for GBP/JPY to head down so fast can be seen in a fast Chinese yuan appreciation, which is driving all other Asian currencies up. The yuan rose by more than 11% in 2007 against the U.S. dollar and is believed to gain near the same in 2008. Judging from the data received since the start of the year, China is acting to strengthen its currency. And strong yuan will certainly influence the yen, helping it to go up against the pound.
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