Pound Japanese Yen (GBP/JPY) Exchange Rate Rallies as UK Private Sector Recovers

Pound Japanese Yen (GBP/JPY) Exchange Rate Strengthens as UK Private Sector Rebounds

The Pound Japanese Yen (GBP/JPY) exchange rate is rallying this morning, as the UK’s February private sector indexes showed a return to growth.

At the time of writing, GBP/JPY is trading around ¥162.8530, an increase of roughly 0.7% from the morning’s opening rates.

Pound (GBP) Rallies as Private Sector Rebounds

The Pound (GBP) is strengthening this morning, following the release of the UK’s latest private sector PMIs. The service sector index showed a return to growth in February, while the manufacturing PMI struck a nine-month high.

Stronger demands for service provides were highlighted, with an improvement in the global economic outlook being a key factor. Similarly, less political uncertainty within the UK was seen as a contributor.

As such, the UK’s private sector was able to snap out of a six-month losing streak. Furthermore, the resilience shown could lead to further tightening from the Bank of England (BoE).

Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, explained:

‘The resilience of the economy and the stickiness of the survey’s inflation gauges add to the likelihood of the Bank of England tightening policy further, and potentially more aggressively.’

Furthermore, Sterling may be being underpinned by a surprise £5.4bn surplus in the UK government’s budget. As a further £7.8bn of borrowing was expected, the news may be buoying GBP.

Japanese Yen (JPY) Muted amid Mixed PMI Release

The Japanese Yen (JPY) is seeing mixed trade this morning, as the latest private sector indexes point to a mixed picture.

While the Japanese services sector index pointed to further growth, the manufacturing index pointed to further downturn.

Andrew Harker, Economics Director at S&P Global Market Intelligence, stated:

‘The picture was much less positive in the manufacturing sector, however, where new orders and production dropped to the greatest extents in just over two-and-a-half years.’

Furthermore, the index pointed to persistent inflationary pressures for Japanese firms. As such, increased hopes that the Bank of Japan (BoJ) may shift to a hawkish strategy may have underpinned the Yen.

Pound Japanese Yen (GBP/JPY) Exchange Rate Forecast: BoJ Policy in Focus

Looking ahead for the Japanese Yen (JPY), overnight on Wednesday BoJ policymaker Naoki Tamura is scheduled to speak. As a vocal critic of the bank’s ultra-loose financial policies, Tamura could strengthen the Yen if he keeps up his criticism.

Further afield, the latest inflation data for Japan is due to print on Thursday. Both headline and core CPI are due to increase, which could strengthen JPY. As the Bank of Japan is currently in a transitory period, this could prove further impetus to renege the current dovish approach in favour of tightening.

For the Pound, data releases are scarce in the short term. As such, market sentiment could drive Sterling’s movement. With the Northern Ireland protocol currently a focus in UK politics, positive developments could boost GBP.

John Mulcahey

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