GBP/JPY extends rally to near 195.00 as safe-haven demand for Japanese Yen diminishes
- GBP/JPY advances as improved US-China trade relations reduce safe-haven demand for the Japanese Yen.
- A joint statement from both countries emphasized the significance of their bilateral economic and trade partnership.
- The Pound Sterling strengthened after the BoE reaffirmed its “gradual and cautious” stance on monetary easing last week.
GBP/JPY is extending its upward momentum for the fourth consecutive session, trading around 194.90 during European hours on Monday. The currency cross is gaining as the Japanese Yen (JPY) weakens following positive developments in US-China trade relations, which have reduced demand for safe-haven assets.
A joint statement from the US-China Economic and Trade meeting in Geneva highlighted the two nations’ recognition of the importance of their bilateral economic and trade relationship, not only for their economies but also for global stability. Both sides emphasized their commitment to a sustainable, long-term, and mutually beneficial partnership.
US Treasury Secretary Scott Bessent underscored the significance of the agreement, announcing a 90-day freeze on tariff escalation along with a substantial 115% reciprocal tariff reduction. Meanwhile, US Trade Representative Jamieson Greer acknowledged that the previous embargo approach was unsustainable, reaffirming both countries’ commitment to the temporary pause, though he noted that the fentanyl issue remains unresolved.
However, losses in the JPY may be limited due to supportive domestic data. Japan’s non-seasonally adjusted current account surplus rose to JPY 3,678.1 billion in March, up from JPY 3,447.8 billion a year earlier and largely in line with forecasts. Trade Balance - BOP Basis reported that goods account surplus widened to JPY 516.5 billion from JPY 463.5 billion, driven by a 1.8% year-on-year rise in exports, which outpaced the 1.3% increase in imports.
The British Pound (GBP) is also trading stronger against major currencies after the Bank of England (BoE) maintained its “gradual and cautious” approach to monetary easing in its policy announcement last Thursday. The BoE cut interest rates by 25 basis points to 4.25%, in line with expectations, though the decision saw a split vote—Monetary Policy Committee (MPC) member Catherine Mann and Chief Economist Huw Pill voted to keep rates unchanged.
On Friday, Pill explained his dissent, citing expectations that long-term domestic pressures could stoke inflation. He also downplayed the potential impact of global trade risks on the UK economy, stating, “We’re not seeing a dramatic shift in the UK economy following recent tariff announcements.”
US-China Trade War FAQs
Generally speaking, a trade war is an economic conflict between two or more countries due to extreme protectionism on one end. It implies the creation of trade barriers, such as tariffs, which result in counter-barriers, escalating import costs, and hence the cost of living.
An economic conflict between the United States (US) and China began early in 2018, when President Donald Trump set trade barriers on China, claiming unfair commercial practices and intellectual property theft from the Asian giant. China took retaliatory action, imposing tariffs on multiple US goods, such as automobiles and soybeans. Tensions escalated until the two countries signed the US-China Phase One trade deal in January 2020. The agreement required structural reforms and other changes to China’s economic and trade regime and pretended to restore stability and trust between the two nations. However, the Coronavirus pandemic took the focus out of the conflict. Yet, it is worth mentioning that President Joe Biden, who took office after Trump, kept tariffs in place and even added some additional levies.
The return of Donald Trump to the White House as the 47th US President has sparked a fresh wave of tensions between the two countries. During the 2024 election campaign, Trump pledged to impose 60% tariffs on China once he returned to office, which he did on January 20, 2025. With Trump back, the US-China trade war is meant to resume where it was left, with tit-for-tat policies affecting the global economic landscape amid disruptions in global supply chains, resulting in a reduction in spending, particularly investment, and directly feeding into the Consumer Price Index inflation.