The GBP/JPY currency pair is experiencing downward pressure, trading at approximately 196.65 during the early European session on Thursday. This decline comes amid a risk-off sentiment that has bolstered the Japanese Yen (JPY) as a safe-haven asset.
Ahead of the European market open, S&P 500 futures were down by 0.10%, while the Nikkei index closed more than 3% lower, marking its lowest point since late April. This risk-averse environment has strengthened the JPY, pushing the GBP/JPY pair to its lowest level since May 16.
Bank of Japan‘s Speculated Rate Hike Boosts JPY
Increased speculation that the Bank of Japan (BoJ) might raise interest rates at its upcoming monetary policy meeting next week has prompted short-sellers to exit their positions. This shift has further supported the JPY against its counterparts.
Bank of England‘s Expected Rate Cut Weighs on GBP
Conversely, the Bank of England (BoE) is anticipated to lower its bank rate to 5% in its August meeting, according to a Reuters poll of economists. This potential rate cut is exerting downward pressure on the Pound Sterling (GBP). Market participants are currently pricing in a nearly 45% chance of a rate reduction to 5.0% next week.
UK Economic Data Shows Mixed Signals
Recent data from the UK revealed some positive developments in business activity. The S&P Global Flash Composite Purchasing Managers’ Index (PMI) rose to 52.7 in July from 52.3 in June, surpassing market expectations. The Manufacturing PMI increased to 51.8 from 50.9, reaching its highest level in two years. However, the Services PMI expanded to 52.4, falling short of the consensus estimate of 52.5.
Overall, the shifting market dynamics and economic indicators are contributing to the current pressure on the GBP/JPY cross.
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