- GBP/JPY extends its winning streak after the economic data release from the United Kingdom.
- The UK Gross Domestic Product expanded by 0.6% QoQ in Q2, as expected, against 0.7% growth in Q1.
- The upside of the pair could be restrained as the JPY receives support from a hawkish mood surrounding the BoJ.
GBP/JPY continues to gain ground for the fourth consecutive session, trading around 189.30 during the early European hours on Thursday. The upside of the GBP/JPY cross could be attributed to positive key economic data, including Gross Domestic Product (GDP) data, from the United Kingdom (UK).
The British economy expanded 0.6% quarter-on-quarter in the second quarter, as expected. There was a 0.7% growth in the first quarter. Meanwhile, the GDP rose 0.9% YoY in Q2 vs. 0.9% expected and 0.3% booked in Q1. The GDP posted a 0% MoM in June, as expected, against a 0.4% increase reported in May.
On the production side, UK Industrial Production grew by 0.8% month-over-month in June, comfortably surpassing market forecasts of a 0.1% increase and accelerating from the 0.3% gain recorded in the previous month. Meanwhile, Manufacturing Production rose 1.1% MoM, surpassing the expected 0.1% increase. This marked the strongest expansion since February.
Finance Minister Rachel Reeves has set a formal target for Britain to achieve the fastest per capita growth in GDP among the Group of Seven (G7) advanced economies for two consecutive years. However, Thursday's figures showed that output per head in the second quarter was 0.1% lower than a year earlier and 0.8% below pre-pandemic levels.
Minister Reeves highlighted that the latest data underscores the challenges facing the new government and reiterated her stance that difficult decisions will be necessary to improve economic fundamentals, according to Reuters.
The upside of the GBP/JPY cross could be restrained as the Japanese Yen (JPY) receives support as Japan’s GDP growth surpassed expectations in the second quarter. This supports the argument for a potential near-term interest rate hike by the Bank of Japan (BoJ).
Japanese Economy Minister Yoshitaka Shindo stated that the economy is expected to recover gradually as wages and income improve. He also mentioned that the government will work closely with the Bank of Japan to implement flexible macroeconomic policies.
GDP FAQs
A country’s Gross Domestic Product (GDP) measures the rate of growth of its economy over a given period of time, usually a quarter. The most reliable figures are those that compare GDP to the previous quarter e.g Q2 of 2023 vs Q1 of 2023, or to the same period in the previous year, e.g Q2 of 2023 vs Q2 of 2022. Annualized quarterly GDP figures extrapolate the growth rate of the quarter as if it were constant for the rest of the year. These can be misleading, however, if temporary shocks impact growth in one quarter but are unlikely to last all year – such as happened in the first quarter of 2020 at the outbreak of the covid pandemic, when growth plummeted.
A higher GDP result is generally positive for a nation’s currency as it reflects a growing economy, which is more likely to produce goods and services that can be exported, as well as attracting higher foreign investment. By the same token, when GDP falls it is usually negative for the currency. When an economy grows people tend to spend more, which leads to inflation. The country’s central bank then has to put up interest rates to combat the inflation with the side effect of attracting more capital inflows from global investors, thus helping the local currency appreciate.
When an economy grows and GDP is rising, people tend to spend more which leads to inflation. The country’s central bank then has to put up interest rates to combat the inflation. Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold versus placing the money in a cash deposit account. Therefore, a higher GDP growth rate is usually a bearish factor for Gold price.
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