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GBP/JPY Pares Recent Gains Below 184.00 On Cautious Sentiment, As UK/Japan Inflation Indicators Are Observed
GBP/JPY reverses its five-day uptrend as it retraces intraday lows after retracing multi-year highs the previous week. Negative sentiment and apprehensions of a Japanese intervention drag on a currency pair. GBP/JPY bears are encouraged by the BoE's hawkish outlook and the positive yield environment. Risk catalysts and UK/Japan inflation indicators are scrutinised for direction.
GBP/JPY accepts bids to re-establish the intraday low near 183.50 on the first losing day in six during Asia's early Monday morning session. In doing so, the cross-currency justifies the market's negative sentiment amid a light economic calender and disregards hawkish Bank of England concerns.
Concerns about the United Kingdom's rising inflation and sturdier Treasury bond yields pushed the GBP/JPY exchange rate to its highest level since late 2008. Nevertheless, in the most recent survey from the UK's Chartered Institute of Personnel and Development (CIPD), human resources executives anticipated a median increase in basic pay rates of 5% – unchanged from the previous two quarters and the joint-highest readings since the survey's inception in 2012. In addition, the CIPD survey reveals that public sector pay expectations reached a record high of 4.0%, up from 3.3%. The same intensifies pressure on the Bank of England (BoE) to raise interest rates in response to rising inflation.
Previously, the UK economy unexpectedly grew by 0.2% in the second quarter. In June, the Gross Domestic Product (GDP) of the United Kingdom increased by 0.2% q/q, which, while modest, was better than forecasts of a level result and significant in the context of 0.4% annual growth. In June, industrial production in the United Kingdom increased 1.8% m/m, significantly outpacing expectations of a 0.2% rise. The manufacturing output increased by 2.4% month-to-month.
Notable is the fact that the Bank of Japan's (BoJ) recent offers to purchase Japan Government Bonds (JGBs) appear to have halted GBP/JPY purchasers.
Elsewhere, Russia's firing of warning shots at a warship in the Black Sea joins the US-China trade/technology conflict to boost yields and support the GBP/JPY exchange rate.
In this context, S&P500 Futuresremain volatile, while US Treasury bond yields increase during Monday's lacklustre Asian session.
Moving forward, this week's UK employment, inflation, and Retail Sales data will be crucial for GBP/JPY traders seeking direction in light of the BoE's probable hawkish move. Also crucial will be Japan's inflation indicators and bond market activity.
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