- GBP/JPY loses momentum, snaps two-day winning streak on Wednesday.
- UK S&P Global/CIPS Composite PMI fell to 48.6 in August vs. 50.8 prior.
- Japanese policymakers will closely monitor FX movements with a sense of urgency.
- The attention will shift to Japan’s Gross Domestic Product (GDP) due on Friday.
The GBP/JPY cross struggles to gain and edges lower to 185.28 during the early European session on Wednesday. Markets turn cautious amid the fear of FX intervention by the Bank of Japan (BoJ).
On Tuesday, the UK S&P Global/CIPS Composite PMI fell to 48.6 in August from 50.8 in the previous month. This figure marked its lowest level since January. Meanwhile, the Services PMI printed 49.5, which is below the 50 threshold indicating the contraction. Service providers witnessed a reversal in customer spending in August as higher financing costs, diminished business confidence, and constrained household finances all acted to dampen sales opportunities.
Traders anticipate that the Bank of England (BoE) is likely to raise 25 basis points (bps) in the upcoming meeting to combat high inflation. However, the BoE’s aggressive tightening of monetary policy might put some pressure on the British Pound (GBP) since investors are concerned about the effect on the UK economy.
Data released on Tuesday showed that Japanese Household Spending fell 5.0% year on year in July, below the market expectation of a 2.5% drop. This figure indicated the sixth straight month of decline. Apart from this, Japan's top currency diplomat Masato Kanda stated a willingness to closely monitor Foreign Exchange movements with a sense of urgency while adding that all the options are on the table. Additionally, Bank of Japan (BoJ) board member Hajime Takata reaffirmed on Wednesday that the central bank will maintain easy monetary policy due to uncertainty on the economic and price outlook. It's worth noting that the monetary policy divergence between the UK and Japan might limit GBP/JPY’s downside for the time being.
Looking ahead, the UK S&P Global Construction PMI for August will be due on Wednesday in the European session. The attention will shift to Japan’s Gross Domestic Product (GDP) for the second quarter on Friday. The quarterly growth number is expected to expand 1.3% from the previous reading of 1.5%. Traders will find the trading opportunity around the GBPJPY cross.
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