The Pound steadily deteriorated against the Japanese Yen last week, with other GBP exchange rates faring equally poorly. The week ahead holds little promise of a recovery for the Pound due to pessimistic forecasts.
The Japanese Yen steadily rose against Sterling by contrast, ending the week on a strong footing against the UK currency. Domestic data out of Japan was positive overall, despite the number of negative figures seen. Japanese data due next week is expected to have a mixed impact on the Yen.
The Pound’s slide against the Yen saw Monday’s high of 133.92 give way to a closing low of 130.47 on Friday, while for the Yen against the Pound, a converse improvement over the week was seen from 0.0074 to 0.0076.
Pound Decline Caused by BoE Dovishness, Rail Strikes and Disappointing UK Data
The Pound was one of the worst performing major currencies last week, against both its usual peers and on the entire global market; by Friday, Bloomberg revealed that the Pound was the
weakest currency against the US Dollar of 2016.
Losses for the Pound started early on Monday, when rail strikes on the Southern network were announced. Additionally, Bank of England (BoE) official Ian McCafferty wrote in The Times that more monetary easing could be required in the near-term, which was interpreted as a possible remit for another UK interest rate cut. This backed up similar sentiment from BoE official Ben Broadbent the week before.
Although the Southern rail strike was called off for Thursday and Friday, more commuter misery and economic uncertainty emerged when Virgin East and Eurostar both voted for strike action.
The UK’s data was similarly disheartening, with Tuesday bringing a widening trade deficit for June and Friday seeing the June construction output result fall from -1.6% to -2.2%.
Such was the extent of this poor data that some economists, such as Pantheon Macroeconomics’ Samuel Tombs, forecast a recession for the UK before the close of 2016.
Japanese Yen Steady after Reasonably Positive Data
The value of the Yen was generally up last week, thanks to the majority of Japanese ecostats coming out positively.
The very first announcement, Monday’s current account for June, fell from 1809bn to 974.4bn, though both Eco Watcher surveys for July saw significant increases in business confidence.
Tuesday’s July annual machine orders ‘improved’ from -19.9% to -19.6%, while Wednesday’s machinery orders for June both made clearer positive motions.
Thursday brought no data, with the celebration of a new national holiday, Mountain Day, while Friday’s foreign bond investment result for August climbed healthily from 312.1bn to 891.8bn.
GBP/JPY Exchange Rate Forecast – UK Inflation and Japanese GDP Stats due for Release
Next week, Pound Sterling/Japanese Yen exchange rate movement may occur as a result of Tuesday’s UK inflation rate result for July, Wednesday’s UK claims and unemployment rate stats and Thursday’s UK retail sales figure.
From Japan, announcements to keep an eye on will include Monday’s preliminary Q2 GDP growth rate and industrial production printings, as well as Thursday’s trade balance and bond investment figures.
In brief, UK inflation is forecast to rise on the year but reprint at 0.2% on the month, while claims made in July have a considerable rise from 0.4k to 5.5k in store. Unemployment in June is forecast to remain at 4.9%, which could boost the Pound due to previous estimates by the BoE that unemployment would rise after the referendum.
Retail sales predictions are a mixed bag, with estimates being for a fall on the year but a rise on the month.
Japanese GDP is predicted to stagnate at 0.5% for the base field but rise from 1.9% to 2% for the annualised offering. Finalised industrial production stats in June have increases expected on the year and month.
Japan’s current trade surplus is estimated to have fallen from 693bn to 466.3bn in July, while a similar reduction is expected for foreign bond investment in early August.
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