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Pound Japanese Yen (GBP/JPY) Exchange Rate Trades Narrowly amid Poor UK Factory Growth

March 1, 2018 - Written by David Woodsmith

UK Factory Growth & Brexit Negotiation Tumult Limits Pound (GBP) Exchange Rates

The Pound Japanese Yen (GBP/JPY) exchange rate traded within a narrow band on Thursday with both currencies limited by poor domestic data releases from their respective nations.

For the UK it was factory growth, with the latest purchasing managers’ index (PMI) revealing a ‘snail’s pace’ of growth in manufacturing in February at 55.2, down from the previous score of 55.3.

This proved the slowest pace of growth in 11 months, with deceleration seen within investment goods, consumer and intermediate sectors.

This was largely driven by a sharp rise in input costs – particularly raw materials and other commodities.

It should be noted, however, that new orders accelerated, and firms continued to post robust employment readings.

Duncan Brock, Director of Customer Relationships at the Chartered Institute of Procurement and Supply commented on the readings:

‘All sectors lost their drive as manufacturing activity crawled at a snail’s pace not seen for almost a year. Amidst these signs of a moderate slowdown, it was supply chain disruptions that were largely at fault. Suppliers underperformed not only on the timely delivery of goods but in their inability to meet the demand from makers for some raw materials. This intensified capacity issues and acted as a drag on overall purchasing activity’.
This news, combined with the current Brexit-related tumult surrounding the Irish border, encumbered the GBP/JPY exchange rate.

Japanese Yen (JPY) Exchange Rates Slip as Consumer Confidence Falls

The Japanese Yen (JPY) was similarly limited on Thursday, with today’s consumer confidence reading, and the Nikkei manufacturing PMI both disappointing.

According to Nikkei’s latest PMI, manufacturing in Japan edged down to 54.1 in February, down from the previous period’s 54.8 but above the forecast of 54.

This was the first time that the headline PMI has declined in four months, with output and new orders revealing the slowest growth since October 2017.

On a slightly better note, however, employment within the sector was up, hitting an 11-year high.

In other news consumer confidence in Japan weakened in February according to data from the Cabinet Office.

The seasonally adjusted consumer confidence index dropped to 44.3, down from January’s 44.7 and below the forecast of a rise to 44.8.

This drop, whilst small, boded poorly for Japan’s economic performance, though yesterday’s rise in construction orders did provide the Yen a semblance of support.

Pound Japanese Yen (GBP/JPY) Exchange Rate Forecast: Theresa May’s Brexit Speech in the Spotlight

The Pound Japanese Yen (GBP/JPY) could see volatility tomorrow, depending on the content of UK Prime Minister Theresa May’s Brexit speech.

Markets are currently expecting May to lay out the UK’s stance on the extent of its future relationship with the EU, including Downing Street’s rejecting of the notion of Northern Ireland remaining within the customs union (and beholden to the European Court of Justice) and the proposal that EU citizens will be allowed to come and stay in the UK during the Brexit transition period (albeit with certain stipulations).

Beyond this, markets will be trying to ascertain two things; if demonstrable progress has been made on the transition front (particularly with March still scheduled for trade talks) and if greater clarity has been provided regarding the UK’s post-Brexit prospects.

If May manages to provide greater clarity, then it could relieve British businesses, which could then resume investment measures.

This would reassure markets and could also push the Bank of England (BoE) even closer to raising interest rates earlier-than-expected.

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