Pound Sterling to Japanese Yen (GBP/JPY) Exchange Rate Losses Seen on UK Inflation Rate Slowdown

October 17, 2018 – Written by John Cameron

The Pound opened trading against the Japanese Yen at a level of ¥147.1200 on Tuesday, later closing higher around ¥148.1484.

This appreciation was brought on by news of a better-than-expected UK wage growth rise in August – the pace of average earnings growth increased despite forecasts for no change.

At the time, there was high optimism that this result could increase the chances of a 2019 Bank of England (BoE) interest rate hike because of increased UK household resilience.

Pound to Japanese Yen (GBP/JPY) Exchange Rate Slides on UK Inflation Rate Upset

Today’s UK economic data has drained confidence among Pound (GBP) traders, leading to a -0.7% drop against the Japanese Yen (JPY) to an exchange rate of ¥147.1410.

This depreciation comes on the news that UK inflation has slowed by more than expected in September, potentially reducing the odds of a Bank of England (BoE) interest rate hike in the process.

The rate of annual price growth slowed from 2.7% to 2.4% for September’s year-on-year figure, below the anticipated 2.6% reading.

Explaining that this result gives the Bank of England (BoE) breathing room when it comes to adjusting interest rates, Redmayne Bentley Investment Analyst Joel Dungate said:

‘The [inflation] figure came a day after encouraging wage growth figures, which showed pay rose by 3.1% in the three months to August, the fastest pace in nearly a decade.

‘This is positive news for consumers, as it should increase their spending power. This, in turn, is good news for the UK economy which relies heavily on consumer spending.

‘The inflation figure will also come as a relief to the BoE, which will be under less pressure to raise rates in the near future.

‘It now appears increasingly unlikely that the central bank will raise rates again before the terms of the UK’s Brexit deal with the EU are clarified.

‘On the other hand, if the trend of real wage growth continues, then we might expect rising inflation in the longer term.’

Beyond this disappointing data, Pound Sterling traders have also been unsettled by the upcoming EU summit on Brexit.

Stalled talks have been in the spotlight recently and there are serious concerns that there could still be no major progress after this meeting, despite the looming November deadline.

Japanese Yen to Pound (JPY/GBP) Exchange Rate Rises on Safe Haven Demand

There has been little Japanese economic data of note out today, but this hasn’t stopped the Japanese Yen (JPY) from trading higher against the Pound (GBP).

The latest Yen appreciation is mainly down to rising demand for safe haven currencies, having been caused by a recent US Dollar decline.

This evening will see the US Federal Reserve releases its latest set of minutes; these might point to an interest rate hike in late 2018.

Despite the possibility, this isn’t an assured outcome so currency traders have moved to the comparatively safer Japanese Yen in the meantime.

Pound to Japanese Yen Exchange Rate Forecast: Are GBP/JPY Gains ahead on Rising UK Retail Sales?

The Pound’s (GBP) decline against the Japanese Yen (JPY) today could be reversed on Thursday morning, depending on how UK data prints.

Before this data comes out, however, the Yen could extend its current gains on early-morning trade balance data.

September’s trade balance deficit is forecast to shrink from -445bn to -50bn, which could boost Yen trader confidence and extend JPY/GBP exchange rate gains.

Later on tomorrow, UK retail sales figures for September are expected to show year-on-year growth which might be enough to cause a GBP/JPY exchange rate rise.

News of higher retail sales activity is supportive for the UK, as it can cause increased GDP growth and bump up the highly important national services PMI.

Monthly UK sales activity is expected to decline, but a pair of annual growth readings could still be enough to support a GBP/JPY exchange rate rise.

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TAGS: Pound Yen Forecasts