Softer UK Services PMI Keeps Pound to Japanese Yen (GBP/JPY) Exchange Rate Near Lows
As September’s UK services PMI fell short of forecast the Pound Sterling to Japanese Yen (GBP/JPY) exchange rate remained on the back foot.
Confidence in the UK’s economic outlook continued to weaken in the wake of the PMI as the index dipped from 58.8 to 55.1.
Although this still places the sector firmly in expansion territory investors were disappointed by the evidence that the service sector had already started to lose some of its initial recovery momentum.
With the government re-imposing some Covid-19 restrictions in response to the growing infection rate the sector looks set to come under further slowdown pressure in the coming months.
The persistent uncertainty over the Brexit issue also encouraged worries over the resilience of the UK economy, leaving Pound Sterling (GBP) exposed to selling pressure.
JPY Exchange Rates Hold up as Safe-Haven Demand Outweighs Contracting Japanese PMIs
Market risk aversion largely benefitted the safe-haven Japanese Yen (JPY), meanwhile, in spite of the persistent sluggishness of the Japanese economy.
Even though both September’s manufacturing and services PMIs remained in a state of contraction this was not enough to put any significant dampener on the Yen.
Comments from Bank of Japan (BoJ) Governor Haruhiko Kuroda offered additional support to JPY exchange rates, as he suggested a willingness to extend support for programmes shoring up businesses.
The prospect of the BoJ continuing to shore up economic activity to the best of its ability in the months ahead limited the downside potential of the Yen at this stage.
However, as safe-haven currencies have seen a solid bullish run in recent days the potential for further Japanese Yen gains may prove limited.
Reaction to the BoJ’s latest set of monetary policy meeting minutes could drive a fresh bout of volatility for the GBP/JPY exchange rate this week.
Evidence of UK Retail Decline Forecast to Weigh on GBP/JPY Exchange Rate
Support for the Pound looks set to remain muted in the days ahead, with forecasts pointing towards an underwhelming CBI distributive trades index.
As investors expect to see the index drop from -6 to -10 in September, suggesting a weakening in conditions within the retail sector, worries over the economy are likely to pick up.
Stronger levels of retail spending and consumer confidence have previously helped to shore up the wider UK economy, giving markets greater cause for concern if these show signs of weakening.
With the possibility of a second lockdown still apparently on the table anything short of evidence that the economy is continuing to recover may see the Pound slide.
Another negative reading from the GfK consumer sentiment index may add to the bearish mood, increasing bets that the third quarter could see a weaker growth rate than hoped.