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Pound Sterling Japanese Yen (GBP/JPY) Exchange Rate Flat as ‘Dreariness’ Hits UK Construction

June 4, 2019 - Written by John Cameron

Pound Japanese Yen (GBP/JPY) Exchange Rate Muted as UK Construction Slides into Contraction

The Pound Sterling Japanese Yen (GBP/JPY) exchange rate remained muted and the pairing is currently trading at an inter-bank rate of ¥137.0270.

On Tuesday, data revealed that the UK construction sector suffered from its sharpest decline in output since March 2018.

The Markit UK construction PMI slipped into contraction territory for the third time in four months.

The PMI fell from 50.5 in April to 48.6 in May.

The survey revealed that clients opted to hold back on major spending decisions due to concerns about the economy and the continued Brexit uncertainty.

Commenting on the data, Duncan Brock, Group Director at the Chartered Institute of Procurement and Supply said:

‘A fragile dreariness descended on the sector this month with lower workloads leading to the fastest decline in purchasing of construction materials since September 2017.

‘The previously unshakeable housing sector barely kept its head above water, growing at its weakest level since February as residential building started to lose momentum. The biggest shock however, came in the form of job creation as hesitancy to hire resulted in the largest drop in employment for six and a half years.’

Japanese Yen (JPY) Flat as Manufacturing Output Expectations Turn Negative

Concerns about global growth and increasing US-China trade tensions encouraged investors to jump into the safe-haven Japanese Yen.

However, the pairing remained muted on Tuesday.

Meanwhile on Monday the Nikkei Japan manufacturing PMI revealed that output continued to fall as demand remained weak.

In May, the manufacturing PMI slipped from 50.2 to 49.8 as firms slowed the rate of hiring and production suffered from cutbacks.

Added to this, future output expectations turned negative for the first time since November 2012 as US-China trade tensions heightened which likely weighed on the Japanese Yen.

Commenting on the data, Economist at IHS Markit, Joe Hayes said:

‘Weak demand from Japan’s key trade partner, China as well as signs of an increasingly sluggish domestic economy, have impacted sales volumes. Sub-sector data also indicated the area where manufacturing softness had hit hardest, with investment goods producers leading the decline in order books. Given the importance of capital goods to Japan’s foreign trade, it would suggest further difficulties lie ahead for Japanese exporters.’

Pound Yen Outlook: Will Disappointing UK Services PMI Weigh on GBP?

Looking ahead to the start of Wednesday’s session, the Japanese Yen (JPY) could rise against the Pound (GBP) following the flash Markit services PMI.

If data reveals the Japanese services industry expands at a faster rate than forecast, the Yen could receive an upswing in support.

Meanwhile, Sterling could slide following the release of the UK services PMI.

If the services PMI follows the trend from this weeks and slides into contraction territory, it could cause the Pound Japanese Yen (GBP/JPY) exchange rate to slide.

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