The GBP/JPY cross extended its losses for the second consecutive day, trading around 198.70 during European hours on Friday. This decline comes in the wake of hawkish remarks from Japanese Finance Minister Shunichi Suzuki, which have added pressure on the cross.
Minister Suzuki’s comments emphasized his readiness to act against excessive currency volatility and assess the effectiveness of such interventions. He also underscored the importance of maintaining market trust in public finances and stated that there is no limit to funds available for foreign exchange interventions, as reported by Reuters.
Despite these comments, the advance of the Japanese Yen (JPY) might have been tempered by a significant drop in Japan’s foreign reserves. The Ministry of Finance reported that reserves fell to $1,231 billion in May from $1,279 billion, marking the lowest level since February 2023. This decline reflects the government’s efforts to defend the JPY through foreign exchange interventions.
In the United Kingdom (UK), the Halifax House Price Index (YoY) showed a 1.5% increase in May, marking the sixth consecutive month of growth and accelerating from a 1.1% rise in April. This exceeded the forecast of a 1.2% increase, indicating a resilient housing market.
Looking ahead, traders will likely focus on the upcoming employment data for the February-April period, set to be released on Tuesday. The UK’s employment numbers have declined for three consecutive periods, and further layoffs could negatively impact the Pound Sterling (GBP). Such a trend would likely increase expectations for early rate cuts by the Bank of England (BoE).
Although the UK’s annual headline inflation significantly dropped to 2.3% in April, BoE policymakers remain concerned about the slower progress in disinflation within the services sector. This concern reduces the likelihood of multiple rate cuts by the BoE this year, adding another layer of complexity to the economic outlook.
Summary
The GBP/JPY cross remains under pressure due to a combination of hawkish comments from Japanese officials and mixed economic signals from both Japan and the UK. The Japanese Yen’s potential gains are limited by a drop in foreign reserves, while the UK faces potential employment challenges that could influence monetary policy decisions. Traders will be closely monitoring upcoming data releases and policy statements for further direction.
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