Pound Japanese Yen (GBP/JPY) Exchange Rate Trends Lower as UK Retail Sales Growth Fades

Softer UK Retail Sales Growth Weighs on Pound Japanese Yen (GBP/JPY) Exchange Rate

A muted month of growth for UK retail sales helped to drag the Pound Sterling to Japanese Yen (GBP/JPY) exchange rate lower ahead of the weekend.

Although sales saw their fourth consecutive month of growth in August this failed to encourage a fresh bout of demand for Pound Sterling (GBP).

Investors were instead disappointed by the limited nature of the monthly growth, which came in at just 0.8% as opposed to the 3.7% surge seen in July.

All in all, this suggests that consumer sentiment started to falter last month, pointing towards a stalling in the economy’s recovery from the Covid-19 lockdown.

Fears that the economy may struggle to maintain its initial momentum in the final months of the year weighed heavily on demand for the Pound, pushing GBP exchange rates down.

Negative Inflation Fails to Push Japanese Yen Lower

While the general sense of market risk appetite showed signs of picking up, meanwhile, the safe-haven Japanese Yen (JPY) was still able to find traction against its rivals.

Even though August’s Japanese inflation data proved underwhelming this was not enough to shore up the GBP/JPY exchange rate on Friday.

As the core inflation rate turned negative, dropping from 0% to -0.4%, the possibility of further action from the Bank of Japan (BoJ) picked up.

Nevertheless, after the election of Yoshihide Suga as Japan’s new prime minister, the chances of any imminent policy action from the central bank appear limited.

Global Economic Worries Set to Support Japanese Yen Demand

Any fresh bout of market risk aversion could help to shore up the Japanese Yen further in the coming week.

Softer Chinese data may encourage bets that the global recovery is stalling, offering a boost to the safe-haven Yen in the short term.

As long as worries over the health of the global economy persist this could diminish the impact of domestic concerns, even though the Japanese economy remains under significant pressure.

With forecasts pointing towards another set of negative Japanese PMIs, though, fears of a poor third-quarter economic performance may dent the Yen.

Forecasts of Weaker UK PMIs Leave Pound Vulnerable

The mood towards the Pound could also remain muted as anticipation grows for the UK’s August manufacturing and services PMIs.

While neither is expected to fall below the neutral baseline of 50, which separates expansion from contraction, momentum still looks set to ease.

A notable weakening of sector momentum may fuel concerns that the third quarter could show a smaller gross domestic product reading than hoped.

Evidence that the UK economy failed to hold onto the initial bounce seen in the wake of the Covid-19 lockdown would leave the GBP/JPY exchange rate exposed to a downside bias.