Pound Japanese Yen Exchange Rate Climbs amid Better-than-Expected UK Economic Growth
The Pound Japanese Yen (GBP/JPY) exchange rate is surging after the UK economy avoided a larger contraction in economic growth.
At time of writing the GBP/JPY exchange rate is trading around ¥181.02, a 0.68% leap from this morning’s opening levels.
Pound (GBP) Boosted by Better-than-Expected GDP Growth
Despite contracting 0.1%, the Pound (GBP) is finding renewed demand after the latest GDP growth printed better than expected. Against expectations of a 0.3% decline MoM in June, GDP growth came in at -0.1%.
GBP investors were buoyed by the news that the economy remains resilient in the face of soaring borrowing costs and inflationary pressures. The Office for National Statistics (ONS) reported that despite the King’s Coronation disruption with an extra bank holiday, a better-than-expected service sector narrowed the economic downturn. However, manufacturing and construction both showed contractions, compounded by ongoing industrial action hampering growth. Darren Morgan, Director for Economic Statistics at the ONS, commented on the data:
‘GDP fell slightly as manufacturing, energy generation and construction all fell back, with some industries impacted by one fewer working day than normal.
‘Meanwhile, despite the coronation bank holiday, pubs and bars saw sales fall after a strong April. Employment agencies also saw another poor month.
‘However, services were flat overall with health recovering, with less impact from strikes than in the previous month, and IT also had a strong month.’
Japanese Yen (JPY) Sours on Shaky Economy
Meanwhile, the Japanese Yen (JPY) is struggling for demand this morning in the wake of disappointing Japanese data from yesterday. The Cabinet Office reported that Machinery Orders and PPI figures printed to the downside, weighing further on JPY investors. Moreover, growing expectations of the Bank of Japan to adjust the Yield Curve Control (YCC) prevented further losses for the Yen.
However, with inflationary pressures still growing due to higher wages, and the economy softening, the chance of the central bank to pivot from their ultra-dovish monetary policy stance wanes. Analysts at Rabobank added that amid lingering concerns over global economic growth, investors should not be so confident of the BoJ switching up their hardline dovish position.
Furthermore, China’s own shaky economy could be closely watched by JPY investors as the world’s second-largest economy continues to show signs of weakness. Further downturn in in China could impact Japan’s own economic activity.
Pound Japanese Yen Forecast: UK Economic Uncertainty to Weigh on Sterling?
Looking ahead, the Pound Japanese Yen exchange rate will be left to trade on market sentiment. Amid a lack of economic data, both the Pound and Japanese Yen will be left vulnerable to market moods. Despite the rally Sterling is enjoying on better-than-expected GDP data, the economic uncertainty surrounding the UK could resurface, denting Sterling.
As for the Japanese Yen, a continued downturn in China could further weigh on JPY, sapping demand.