Pound Japanese Yen (GBP/JPY) Exchange Rate Rallies in Spite of UK Services PMI Miss

Weaker UK Services PMI Fails to Dent Pound Japanese Yen (GBP/JPY) Exchange Rate

A downwardly revised UK services PMI was not enough to keep the Pound to Japanese Yen (GBP/JPY) exchange rate from rallying.

Even though the finalised December services PMI clocked in at 49.4 rather than 49.9, highlighting the continued struggle of the sector, this failed to drag the GBP/JPY exchange rate down.

While signs point towards the UK economy experiencing a fresh slowdown in the fourth quarter Pound Sterling (GBP) held onto a positive footing against its rival.

Support for the Japanese Yen (JPY) generally declined, meanwhile, thanks to the elevated sense of risk appetite continuing to dominate markets.

With the US Senate race looking increasingly likely to hand control of the House to the Democrats investors found fresh cause for confidence, leaving the safe-haven Yen lacking in appeal.

GBP/JPY Exchange Rate Looks to Rally Further on Positive UK Construction PMI

Even so, the Pound remained on the back foot against the majority of its rivals thanks to growing fears over the economic outlook.

Thursday’s release of the latest UK construction PMI could put a floor under GBP exchange rates, however.

With forecasts pointing towards another solid month of growth for the sector, with the PMI expected to rise to 55, worries over the economy could temporarily diminish.

Although the construction sector only accounts for a small fraction of the UK gross domestic product a strong showing here could still offer the GBP/JPY exchange rate a fresh leg up.

On the other hand, if the PMI fails to strengthen as forecast this could give investors renewed reason to pile out of the Pound.

The fading impact of the initial lockdown announcement may offer some room for GBP exchange rate recovery in the near term, though.

Growing Risk Appetite to Keep Japanese Yen Under Pressure

As long as market risk appetite remains strong the Japanese Yen could struggle to return to a positive footing against the Pound.

If Friday’s US non-farm payrolls report shows that the labour market continued to weaken in December this may give investors fresh incentive to sell out of safe-haven assets.

The relative weakness of the US Dollar (USD) may well continue to drag the Japanese Yen lower against its rivals in the days ahead.

Support for JPY exchange rates may also weaken if November’s leading economic index weakens for November as anticipated.

Signs of the Japanese economy struggling to hold onto its momentum in the face of ongoing Covid-19 disruption may encourage the GBP/JPY exchange rate to gain fresh ground.