GBP/JPY maintained its position above 187.00 during Asian trading hours on Tuesday, receiving minor support from mixed employment data from the UK. The ILO Unemployment Rate in the UK eased to 4.1% in the three months to July, following June’s 4.2% print, as reported by the Office for National Statistics (ONS). Additionally, the UK Claimant Count Change showed a decrease in the number of unemployed people to 23.7K in August, falling short of market expectations. Average Earnings Including Bonus (3Mo/Yr) came in at 4.0% in July, against the expected 4.1%.
On Monday, the GBP/JPY cross found support as the Japanese Yen struggled due to weaker-than-expected Gross Domestic Product (GDP) data from Japan. Despite this, strong economic growth, rising wages, and ongoing inflationary pressures in Japan continue to support expectations of the Bank of Japan (BoJ) raising interest rates further. Japan’s GDP Annualized expanded by 2.9% in the second quarter, slightly below the preliminary estimate of 3.1% but still marking the strongest yearly growth since Q1 2023. A quarter-on-quarter basis, GDP grew by 0.7% in Q2, falling short of market predictions. Shigeru Ishiba, a candidate in the ruling party’s leadership race in Japan, emphasized the importance of achieving a complete exit from deflation in the country.
Inflation measures the rise in the price of a representative basket of goods and services, usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core inflation excludes volatile elements like food and fuel and is the figure targeted by central banks to maintain inflation at a manageable level, typically around 2%. The Consumer Price Index (CPI) measures the change in prices of goods and services over time and is a key indicator for central banks. Core CPI excludes volatile inputs like food and fuel, with central banks raising interest rates when core inflation rises above 2% and lowering rates when it falls below 2%.
High inflation in a country can lead to an increase in the value of its currency as the central bank is likely to raise interest rates to combat inflation. This attracts more global capital inflows, supporting the currency. Gold was historically a safe-haven asset in times of high inflation, but central bank interest rate hikes can reduce its appeal as they increase the opportunity cost of holding gold instead of interest-bearing assets. Lower inflation, on the other hand, tends to be positive for gold as it brings interest rates down, making gold a more attractive investment option.Overall, the GBP/JPY cross continues to be influenced by economic data from both the UK and Japan, as well as broader inflation and interest rate expectations. Traders will closely monitor upcoming data releases and central bank statements for further insights into the direction of the currency pair.
