GBP/JPY rises to new 16-year high after Pound Sterling rallies on strong GDP data

• 
  GBP/JPY
  rallies
  to
  a
  new
  high
  above
  208
  after
  the
  release
  of
  better-than-expected
  UK
  GDP
  data
  supports
  GBP. 
• 
  The
  data
  could
  lead
  the
  BoE
  to
  take
  a
  more
  cautious
  approach
  to
  cutting
  interest
  rates,
  supporting
  GBP.
• 
  Japanese
  PPI
  inflation
  data
  rose
  strongly
  in
  June
  but
  BoJ
  is
  still
  not
  expected
  to
  aggressively
  raise
  rates,
  weighing
  on
  JPY.
   

GBP/JPY
has
reached
a
new
16-year
high
of
208.11
on
Thursday,
driven
by
an
appreciating 
Pound

Sterling
(GBP)
after
the
release
of
better-than-expected
Gross
Domestic
Product
(GDP)
data
for
the
United
Kingdom,
in
May. 

GBP/JPY
Daily
Chart

The
UK
economy
grew
at
a
pace
of
0.4%
month-over-month
in
May,
higher
than
economists’
consensus
estimates
of
0.2% and
April’s
0.0%,
according
to
data
from
the
Office
of
National
Statistics
(ONS),
released
on
Thursday. 

“Many
retailers
and
wholesalers
had
a
good
month,
with
both
bouncing
back
from
a
weak
April.
Construction
grew
at
its
fastest
rate
in
almost
a
year
after
recent
weakness,
with
house
building
and
infrastructure
projects
boosting
the
industry”,
said
Liz
McKeown,
Director
of
Economic
Statistics
at
the
ONS.

The
stronger
growth
data
for
May
suggests
UK
GDP
growth
in
Q2 could
come
out
at
0.7%
quarter-over-quarter,
which
is
higher
than
the
Bank
of
England’s
(BoE)
forecast
of
0.5%,
according
to
Capital
Economics. 

“​​At
the
margin
this
may
mean
the
Bank
(BoE)
doesn’t
need
to
rush
to
cut
interest
rates.
We
still
think
the
Bank
will
cut
interest
rates
from
5.25%
to
5.00%
at
the
next
policy
meeting
in
August,
although
the
timing
of
the
first
cut
will
be
heavily
influenced
by
June’s
inflation
and
May’s
labour
market
data
releases
next
week,”
says
Ashley
Webb,
UK
Economist
at
Capital
Economics. 

Though
still
unlikely,
a delay
in
the
timing
of
the
BoE’s
first
rate
cut
would
lead
to
a
stronger
Pound
Sterling.
More
probable
is
that
the
BoE
reduces
interest
rates
at
a
slower
pace.
This
too
would
support
GBP,
however, since
higher
interest
rates
are
positive
for
currencies
as
they
attract
greater
inflows
of
foreign
capital. 
It
would
also
probably
push
GBP/JPY
higher.
That
said,
expectations
remain
elevated
the
BoE
will
pull
the
trigger
and
cut
rates
in
August. 

“We
believe
it
is
a
done
deal
(August
rate
cut),
as
there
is
simply
no
reason
to
wait
until
September
19. 
Inflation
is
already
at
the
2%
target,
while
the

economic
data
have
clearly
softened
in
recent
months,”
said
Dr.
Win
Thin,
Global
Head
of
Markets
Strategy
at
Brown
Brothers
Harriman
(BBH). 

GBP/JPY
upside
capped
by
hot
Japanese
inflation 

GBP/JPY
upside
may
be
tempered,
however,
after
recent
hotter-than-expected
Producer
Price
Index
(PPI)
data
from
Japan.
PPI
measures
“factory
gate
price”
inflation
which
is
often
a
precursor
to
inflation
in
the
wider
economy.
PPI
in
June
came
out
at
2.9%
year-over-year,
beating
the
previous
month’s
2.6%
YoY
reading
and
in
line
with
consensus
expectations.
It
was
the
fifth
consecutive
month
of
increasing
gains
for
the
indicator,
the
41st
consecutive
month
of
PPI
inflation,
and
the
highest
reading
since
August
2023.  

Despite
the
higher
inflation
data
the
Bank
of
Japan
(BoJ)
is
still
not
expected
to
begin
an
aggressive
tightening
cycle
in
which
it
ratchets
up
interest
rates
in
meeting
after
meeting.
Rather
it
is
only
expected
to
make
0.35%
of
interest-rate
hikes
in
the
next
12
months
according
to
BBH,
so
“upwards
pressure”
is
likely
to
persist in
Yen
pairs. 

GBP/JPY
faces
a
further
risk
of
“stealth
intervention”
by
the
Japanese
authorities
to
prop
up
the
Japanese
Yen
(JPY),

according
to
Sagar
Dua,
Editor
at

FXStreet.
In
late
April
and
early
May
2024,
the
Bank
of
Japan
(BoJ)
undertook
direct
market
interventions
to
buttress
the
Yen
when
it
was
at
lower
levels.
A
too-weak
Yen
is
seen
as
a
financial
stability
risk
for
importers
and
encourages
the
“wrong
kind”
of
inflation
in
the
economy,
according
to
Japanese
policy
makers
and
currency
czars.