The Japanese Yen (JPY) strengthened to its best level in a week against the Pound Sterling (GBP) but softened against the US Dollar (USD) on Tuesday as the UK currency was weakened by the release of worse than forecast inflation data and the US currency found support from stronger than expected data.
The Yen came under pressure earlier in the session as a report showed that Japanese manufacturing activity expanded in March at a far weaker pace than in the preceding month as domestic orders softened. The Markit/JMMA Flash Japan Manufacturing Purchasing Managers Index (PMI) fell to a seasonally adjusted level of 50.4 from February’s final figure of 51.6. In a PMI, any number above 50 indicates expansion whilst a number below indicates contraction.
The softer than expected data came a day after the Japanese Cabinet Office upgraded its economic assessment for March, it was the first time it has done so in eight months. It cited an improving business climate linked to the fading impact of the April consumption tax hike.
‘The Japanese economy is on a moderate recovery, as improvement can be seen in the corporate sector. As for private spending it holds firm as a whole,’ the Cabinet Office said in its March report.
Despite the softer data, the Japanese Yen was able to advance against the Pound.
The Pound Sterling exchange rate was weakened by data, which showed that inflation in the UK fell to a record low level of zero in February. The worse than forecast figure increased speculation that an interest rate rise this year by the Bank of England (BoE) may now firmly be off table. The data showed that the annual rate of consumer price inflation fell from January’s figure of 0.3% to zero. Economists had been expecting a fall to 0.1%.
The US Dollar, meanwhile, advanced against the majority of its most traded peers as consumer prices in the world’s largest economy were shown to have increased by 0.2% in February, a sharp rebound from the preceding month’s fall of -0.7%. The ‘Greenback’ received support from stronger than forecast domestic Manufacturing PMI and New Home Sales data.
Comments made by San Francisco Fed President John Williams that the bank should start raising rates earlier and that the fall in energy prices and the stronger Dollar would only have a short-term impact on inflation also supported the US Dollar.
The Pound Sterling to Japanese Yen fell to a session low of 177.7700