Pound Japanese yen (GBP/JPY) strengthens despite optimistic Japan PMI

The pound Japanese yen (GBP/JPY) is rebounding from this week’s lows following Japan’s downwardly revised services PMI.

At the time of writing the GBP/JPY exchange rate is trading at around ¥190.898, up approximately 0.2% from this morning’s opening rate.

Japanese yen (JPY) slumps despite upbeat data

The Japanese yen (JPY) is losing ground against its major rivals this morning despite some upbeat macroeconomic releases this week.

Japan’s finalised S&P Global services purchasing managers index (PMI) fell below preliminary forecasts of 54.9 today, with the index printing at 54.1 in March. However, despite a downward revision, activity in the services sector managed to reach a seven-month high, pointing to a nineteenth consecutive month of expansion.

Growth in demand, employment and customer numbers underpinned the robust reading, though persistent weakness in the Japanese yen ultimately offset JPY’s upside potential, as investors favoured the currency’s stronger rivals.

Following the Bank of Japan’s (BoJ) decision to end eight years of negative interest rates last month, the JPY has trended lower, as markets interpreted the central bank’s forward guidance as dovish in nature, assuming that interest rate hikes may not occur for some time yet.

Such assertions continue to leave JPY on the defensive, as market forecasts of continually accommodative policy limit JPY’s gains despite recent strength in economic figures.

Pound (GBP) quiet amid data lull

The pound (GBP) is trading in a narrow range this morning, with a lack of fresh UK data pushing surmounting Bank of England (BoE) interest rate cut bets into focus.

The latest outlook from the American multinational investment banking group Goldman Sachs stated that reduced energy price pressures will lead to rapidly easing services inflation in the coming months. The accounting giant went on to state that this will likely encourage imminent monetary loosening from BoE rate-setters, with such forecasts fuelling already soaring expectations of a June interest rate cut.

James Moberly and Sven Jari Stehn, economists at Goldman Sachs, wrote:

‘We find that the pass-through effects from higher energy and food prices will unwind rapidly in coming months.

Services inflation will slow markedly over the next 6-9 months as past effects from high energy prices drop out.’

Amid a data-light session, the forecast may serve to stifle GBP through the remainder of the session.

Pound Japanese yen exchange rate forecast: UK’s finalised PMI in focus

Looking ahead, the UK’s finalised services PMI for March could imbue Sterling’s exchange rates with additional volatility. Following a slight decrease in the index’s preliminary estimates, confirmation that services activity has retreated to a three-month low could undermine GBP.

While businesses cite decreased disposable income in average UK households as the main reason for falling services growth, the Bank of England could face pressure to begin its loosening cycle as persistently high interest rates continue to stifle UK household spending.

For the Japanese yen, a spell of gloomy trade could see the safer currency gain ground against the more risk-sensitive pound. Alternatively, cheery trade may see JPY slump against its riskier peers.

Otherwise, any central bank commentary in the coming days may drive GBP/JPY movement. Any further suggestion that the BoE could shift towards looser monetary policy in the coming months could dampen investor interest in the pound.