Pound Japanese Yen (GBP/JPY) Exchange Rate Tumbles as Chinese CPI Misses its Mark

February 12, 2018 - Written by John Cameron

STORY LINK Pound Japanese Yen (GBP/JPY) Exchange Rate Tumbles as Chinese CPI Misses its Mark

Pound (GBP) Exchange Rates Fail to Capitalise on Hawkish Comments from BoE Vlieghe

The Pound Japanese Yen (GBP/JPY) exchange rate floundered on Monday morning, continuing to struggle after recent soft Chinese inflation figures prompted renewed demand for the Japanese Yen.

This ongoing surge prevented the Pound from actively capitalising on some rather upbeat comments from Bank of England (BoE) Policymaker and long-term dove Gertjan Vlieghe, who asserted on Monday that the BoE will be pushed further towards a succession of rate hikes in the next few years in order to counteract the UK’s warming economy.

Vlieghe stated:

‘Further rises in rates are likely to be appropriate’, ‘We are on a trajectory, it was not one hike in November and a long break’.

Vlieghe cited acceleration in global growth, low unemployment and fresh rises in UK wages as the predominant factors, whilst also pointing to Britons’ greater willingness to borrow as indication that rates should soon be raised.

Alas, after last week’s statement from the BoE that a rate hike in May will be largely determined by success on the Brexit transition front, it would appear that markets are extremely hesitant to buy too heavily into Sterling until negotiation progress is made.

Japanese Ecostats Disappoint, JPY Exchange Rates Unencumbered

The Japanese Yen shrugged off last week’s run of disappointing data releases, unperturbed by a fall in the Japan Eco Watchers’ index and December’s tertiary industry index.

Japan’s Eco Watchers survey, a measure of peoples’ assessment of the Japanese economy, fell from 53.9 to 49.9 in January, missing the forecast of a slight fall to 53.7.

This marked the weakest level in six months.

The Tertiary index, a measure of the total value of services produced by Japan’s service sector over the past month, also disappointed, falling on Friday from 1.1% to -0.2%.

The ensuing drop in Chinese inflation quickly overruled these negative readings, however, with the Japanese Yen continuing to find support into Monday.

GBP/JPY Exchange Rate Forecast: UK Inflation in the Spotlight

The Pound Japanese Yen (GBP/JPY) exchange rate could find room to rally tomorrow, depending on the UK’s looming inflation release.

Markets are currently expecting the core year-on-year inflation reading to rise from 2.5% to 2.6%, a jump that would indicate that consumer price growth remains resilient in the face of the November rate increase and that more rate hikes are, perhaps, warranted.

It should be noted, however, that markets have now largely priced in a rate hike for May after last week’s optimistic statement on monetary policy, thus nothing short of a significantly below-forecast drop could perhaps scupper these expectations.

Beyond this, Tuesday will feature Japan’s growth readings, with an annualised quarter-on-quarter Q4 print of 1.00% expected – significantly below the previous period’s 2.5%.

If this occurs as forecast then the GBP/JPY exchange rate could find room to rally.

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TAGS: Pound Yen Forecasts