The GBP/JPY cross saw a robust intraday recovery on Thursday, bouncing back from a three-week low touched during the Asian session and climbing above the 203.00 mark. At present, the spot price is trading with modest intraday gains around the 203.30-203.35 region, halting a recent pullback from the highest level seen since August 2008.
Initially, there was market speculation that Japanese authorities might have intervened in the foreign exchange market to bolster the domestic currency. However, this reaction quickly dissipated due to the lack of concrete evidence of such intervention. The Japanese Yen (JPY) was further undermined by unimpressive trade balance data from Japan and the prevailing bullish sentiment in global equity markets, leading to some short-covering around the GBP/JPY cross.
Japan’s official trade report indicated a swing to a surplus of ¥224 billion, against an expected deficit of ¥240 billion and a ¥1.22 trillion deficit in the previous month. Despite this surplus, details revealed that Japan’s exports and imports grew less than anticipated in June, reflecting subdued local economic activity and sluggish overseas demand. This scenario could deter the Bank of Japan (BoJ) from raising interest rates.
Conversely, the British Pound (GBP) was supported by reduced expectations for an interest rate cut by the Bank of England (BoE). These expectations were bolstered by UK consumer inflation figures released on Wednesday, showing a slight rise of 2% YoY in June, surpassing expectations. This followed better-than-expected GDP growth of 0.4% in May, providing additional support for the GBP and boosting the GBP/JPY cross.
Despite the intraday move upwards, the sustainability of this recovery remains uncertain amid ongoing speculation about potential Japanese intervention to strengthen the JPY. Moreover, market participants may await the release of the UK employment figures before making significant directional bets. Therefore, a strong follow-through buying is necessary to support prospects for further gains in the GBP/JPY cross.
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