Pound Japanese Yen (GBP/JPY) Exchange Rate Slides as UK Economy Stagnates

Pound Japanese Yen (GBP/JPY) Exchange Rate Drops as UK Rail Strikes Set to Continue

(Updated 16:39 10/02/23)

The Pound Japanese Yen (GBP/JPY) exchange rate continued to drop over the course of today. A persistently cautious mood in the markets may have deepened losses for the pairing as well as the confirmation of stagnation in the UK’s economy.

News that rail strikes are set to continue in the UK may have also pulled the exchange rate lower. RMT general secretary Mick Lynch confirmed that union members had rejected the train operating companies’ latest offer.

Markets may have further coalesced around the news of Kazuo Ueda’s as the next Governor of the Bank of Japan (BoJ), potentially prompting further losses in GBP/JPY.

At time of writing the GBP.JPY exchange rate is at around ¥158.6720, which is down roughly 0.4% from this morning’s opening figures.

Original article continues below:

Pound Japanese Yen (GBP/JPY) Exchange Rate Slips after Above-Forecast UK GDP Contraction

The Pound Japanese Yen (GBP/JPY) exchange rate is falling today. An above-forecast December contraction in the UK’s economy may be pulling the pairing lower. Additionally, speculation on a potentially hawkish pivot from the Bank of Japan (BoJ) may also be weighing on GBP/JPY.

The exchange rate may be underpinned by data indicating the UK avoided a technical recession in 2022, however.

At time of writing the GBP/JPY exchange rate is at around ¥158.9290, which is down roughly 0.2% from this morning’s opening figures.

Pound (GBP) Firms as UK Narrowly Avoids Technical Recession

The Pound (GBP) is trading with limited gains today. An above-forecast contraction in the UK’s economy in December may be capping Sterling’s upward momentum today. The data may also be prompting Sterling’s sharp losses against the Japanese Yen (JPY).

December’s monthly GDP contracted by 0.5% versus the expected 0.3%. Ongoing industrial action was highlighted as a key driver in the downturn. The UK’s economy expected to fare even worse in the coming year.

Sterling is likely finding support today from evidence that growth in the final quarter of 2022 stagnated. The figures indicate that the UK managed to avoid a technical recession last year. Economists are still largely anticipating a 2023 recession for the UK, however.

Debapratim De, senior economist at Deloitte, said:

‘The UK avoided a recession last year but by the slimmest of margins. Going by recent data revisions, today’s figures could well be revised downwards in a few months, painting a very different picture for growth.’

Japanese Yen (JPY) Boosted by News Ueda Set to Become BoJ Governor

The Japanese Yen (JPY) is climbing today. A retreat in global risk appetite could be prompting the safe-haven Yen’s strong gains today.

JPY may also be finding support from news that Kazuo Ueda is set to be appointed as the next Governor of the Bank of Japan (JPY). Markets have taken heart in the prospect of a more hawkish head of the central bank.

Shotaro Kugo, an economist at Daiwa Institute of Research, said:

‘None of the three governor/deputy governors appear to have the (dovish) reflationist idea. I can see the government’s intention to renew the monetary policy direction from the previous one.’

GBP/JPY Exchange Rate Forecast: Will UK Core Inflation Remain Stubbornly High?

Looking to the coming week for the Pound, employment data on Tuesday could push Sterling higher. December’s unemployment is expected to remain unchanged from last month’s reading of 3.7%.

Additionally, average earnings are expected to remain high. The data could point to a tight labour market, and boost the Pound off the back of Bank of England (BoE) rate hike bets.

On Wednesday, a slip in January’s inflation could dent confidence in Sterling if the data prints as expected. Inflation is forecast to remain in double digits however, and if core inflation also remains high it could bolster market bets on action from the BoE. This could in turn lend support to GBP.

Finally on Friday, a further downturn in January’s retail sales could pull the Pound lower. The slowdown is expected to ease however, which may limit any losses for the currency.

Looking to next week for the Yen, fourth quarter GDP growth data could see gains for JPY if the data prints as forecast on Monday. Growth in the final quarter of 2022 is expected to rise to 0.5% after a downturn in the third quarter.

Wednesday’s trade figures could weigh heavily on JPY if they print as expected. The export-heavy country’s trade deficit is forecast to widen drastically.


Gareth Monk

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