GBP/JPY Climbs Further Toward Its Highest Level In Nearly Two Weeks On Mixed UK PMIs
Key Takeaways:
- GBP/JPY gains positive traction for the second consecutive day on Wednesday, supported by a combination of factors
- Upbeat U.K. Services PMI data and a weaker U.S. dollar are a tailwind to the GBP/JPY cross
- JPY continues its relative underperformance. However, intervention fears by BoJ continue to lend support
The Great British Pound (GBP) appreciated toward ¥192.900 on Tuesday during the Asian session, rising to its most substantial level in nearly two weeks as upbeat U.K. Services PMI and modest U.S. dollar downtick boosted the single currency further.
An S&P Global report released on Tuesday showed that U.K. Services PMI rose to 54.9 in April 2024 from 53.1 in March and above market forecasts of 53, preliminary estimates showed. The latest reading indicated the sixth consecutive month of expansion in the country's services sector and the strongest in almost a year.
To a greater extent, the upbeat U.K. Services PMI data report overshadowed an unexpected contraction in the manufacturing sector in the U.K. The downbeat manufacturing PMI data report marked the resumption of contraction in U.K. factory activity, dimming hopes of an improving manufacturing backdrop after last month's reading unexpectedly halted a streak of 18 consecutive monthly declines in activity.
They said the cable drew further support from the latest comments by Bank of England Chief Economist Huw Pill, who said on Tuesday that interest rate cuts remained some way off.
Additionally, the modest U.S. dollar downtick boosted by cooling U.S. business growth and easing tensions in the Middle East is another factor acting as a tailwind to the GBP/JPY pair.
It is worth noting that last Friday, Israel initiated a missile strike against Iran, leading investors to flee for safer assets, hence benefiting the greenback. However, sources showed that the magnitude of the attack may have been limited and that Iran downplayed Israel's reported retaliation, tamping down fears that the conflict might tip over into a broader war.
Shifting to the Japanese docket, the Japanese yen (JPY) continues its relative underperformance in the wake of repeated intervention warnings by Japanese officials as speculation swirls on the timing of the BoJ's next rate hike. Noteworthy, Japanese Finance Minister Shunichi Suzuki issued the strongest warning to date on the chance of intervention on Tuesday, saying last week's meeting with U.S. and South Korean counterparts had laid the groundwork for Tokyo to act against excessive yen moves.
Despite this, markets do not expect the Bank of Japan to tweak its policy further at the conclusion of its two-day policy meeting on Friday. Last month, the bank raised interest rates for the first time since 2007.
However, if the Japanese central bank chooses to surprise markets on Friday, especially in the wake of repeated intervention warnings by Japanese officials to prevent the yen's further free fall against its major counterparts, this will strengthen the yen, thereby limiting further losses around the GBP/JPY pair.
This would come at a special time when the Bank of England (BoE) is expected to ease aggressively its monetary policy in the coming months, thereby helping to prevent any further uptick in the GBP/JPY pair.
