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Pound Japanese Yen (GBP/JPY) Exchange Rate Stuck in a Narrow Range as UK Services Sector Slows

November 5, 2018 - Written by John Cameron

The Pound Japanese Yen (GBP/JPY) exchange rate is treaded water on Monday afternoon following the release of the UK’s latest Services PMI.

Pound (GBP) Exchange Rates Subdued as UK Services PMI Underwhelms

Following on from a surge at the very start the week’s session amid reports of a possible breakthrough in Brexit, the Pound was forced to cede some ground by Monday afternoon following the publication of the UK’s latest Services PMI.

According to data published by IHS Markit, the UK services sector registered a sizable drop in growth last month, with the index slumping from 53.9 to 52.2 in October.

Not only did this see the index fall well below the 53.3 that had been forecast, but it also marked the slowest pace of growth since March, when the sector was disrupted by the weather.

The drop appeared to be mostly driven by Brexit uncertainty, but was also blamed on underlying weakness in UK business conditions.

Most worrying of all however were suggestions that were viewed alongside the other PMI releases this hints that UK economic growth may have slowed to just 0.2% in the fourth quarter.

Chris Williamson, Chief Business Economist at IHS Markit said:

‘The disappointing server sector numbers bring mounting evidence that Brexit worries are taking an increasing toll on the economy.

‘Combined with the manufacturing and construction surveys, the October services PMI points to the economy growing at a quarterly rate of just 0.2%, setting the scene for GDP growth to weaken sharply in the fourth quarter.’

Japanese Yen (JPY) Exchange Rates Flat as Kuroda Rules out Rate Hike

At the same time the Japanese Yen (JPY) is showed few signs of life on Monday as well following a speech by Bank of Japan (BoJ) Governor Haruhiko Kuroda.

Speaking to business leaders in Nagoya, central Japan, Kuroda appeared to rule out any chances of a rate hike in the immediate future as he spoke about some of the issues facing Japanese banks due to fundamental problems such as a shrinking population as he suggested:

‘These long-term problems warrant attention. But for the time being, raising rates and steepening the yield curve could worsen the economy and have an undesirable effect on financial institutions.’

However at the same time Kuroda appeared to indicate that any stimulus efforts from the bank were likely to be more measured as he said:

‘Japan’s economic activity and prices are no longer in a situation where decisively implementing a large-scale policy to overcome deflation was judged as the most appropriate policy conduct, as was the case before.’

This neutral outlook from the BoJ ultimately did little to inspire JPY investor’s leaving the Yen slightly softer on Monday.

GBP/JPY Exchange Rate Forecast: Can some Strong UK GDP Figures Deliver Further Gains for Sterling?

Looking ahead, the release of the UK’s latest GDP figures are likely to prompt some significant movement in the Pound Japanese Yen (GBP/JPY) exchange rate.

Economists currently forecast that UK growth will have jumped from 0.4% to 0.6% in the third quarter on the back of some strong consumer spending over the summer, leading to a possible jump in Sterling following the GDP release on Friday.

In the meantime, Brexit is likely to remain a major catalyst for movement in Sterling through much of the week, with GBP exchange rates likely to reflect market optimism towards the potential of some positive progress being made towards reading a deal.

The focus for JPY investors meanwhile will be on the Bank of Japan’s Summary of Opinions on Wednesday, as it provides markets with greater insight into the reasons behind the Bank’s October policy decision.

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