The Pound Sterling to Japanese Yen (GBP/JPY) exchange rate was trending within a limited range on Wednesday morning.
In response to a set of less-than-ideal domestic data publications, the British asset slumped versus many of its closest currency rivals. Given that the services sector makes for a significantly large proportion of the UK gross domestic product, the poor Services PMI reading has unsettled investors. The slower rate of services growth is also likely to weigh on policymaking decisions.
The Japanese Yen, meanwhile, softened versus most of its currency peers despite registering comparatively positive domestic data results. The depreciation can be linked to comments made by Bank of Japan (BOJ) policymaker Sayuri Shirai, who stated that she wouldn’t hesitate to intervene in order to bring the bank closer to its inflation target.
The Pound Sterling to Japanese Yen (GBP/JPY) exchange rate is currently trending in the region of 190.0500.
Pound Sterling (GBP) Exchange Rate Forecast to Soften versus the Euro on Poor British Data
Although geopolitical tensions in Europe are weighing on investment, the common currency held gains versus the Pound after British data produced a succession of unfavourable results.
As explained above, the main reason for the Pound’s depreciation was a below forecast result in British services (which accounts for over ¾ of British GDP). The Markit Services PMI was forecast to drop a little from 59.5 to 59.2 in May, but the actual result dived to 56.5. This led to a below-forecast reading from the Composite PMI in May.
Chris Williamson, Chief Economist at Markit, said; ‘The surveys point to GDP growing at a quarterly rate of just 0.4% in May, raising doubts about the ability of the economy to rebound convincingly from the weakness seen at the start of the year. The lacklustre growth picture will be a concern to policymakers and effectively kills off the chances of any imminent hiking of interest rates by the Bank of England. Rate hikes later this year should not be ruled out: there are signs that the disappointing rate of expansion is only temporary, linked to uncertainty surrounding the general election, and the surveys point to rising inflationary pressures as well as a further tightening of the labour market.’
The Pound Sterling to Japanese Yen (GBP/JPY) exchange rate has fallen to a low of 189.5200 today.
Japanese Yen (JPY) Exchange Rate Forecast to Soften versus the US Dollar despite Positive Data Results
Although the US Dollar is trending in a relatively weak position as traders await economic data, the Yen softened versus its US counterpart despite Japan registering better-than-expected services data. The Markit Services PMI was forecast to drop slightly from 51.3 to 51.02 in May, but the actual result rose to 51.5.
Commenting on the Japanese Services PMI survey data, Amy Brownbill, Economist at Markit, said; ‘The latest PMI data signalled a general improvement in business conditions at Japanese services firms. Activity increased for the second straight month, while new orders expanded at the quickest pace since November last year. Subsequently, service sector providers continued to hire staff for the second successive survey period.’
However, the Yen depreciated thanks to comments from BOJ policymaker Sayuri Shirai, who stated that the bank’s inflation target was unrealistic and she would not hesitate to intervene in order to push inflation towards target levels. ‘If downside risks materialize and are likely to significantly weaken the underlying trend in inflation, I would not hesitate to consider some monetary policy actions.’
Pound Sterling to Japanese Yen (GBP/JPY) Exchange Rate Forecast to Hold Steady on Lack of Data
Given the absence of further domestic data publications to provoke changes, the Pound Sterling to Japanese Yen (GBP/JPY) exchange rate is likely to hold steady for the remainder of Wednesday’s European session. Thursday could see heightened GBP/JPY volatility with the Bank of England (BoE) due to make its interest rate decision.
The Pound Sterling to Japanese Yen (GBP/JPY) exchange rate has advanced to a high of 190.8100 today.
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