GBP/JPY snaps four-day losing streak on improved market mood

• GBP/JPY edges higher on Wednesday, snapping a four-day losing streak as risk sentiment improves.
• UK PMI misses forecasts but stays in expansion; Japan data mixed.
• BoE’s Bailey cautions on rate hike expectations; BoJ highlights stagflation risks.

GBP/JPY rebounds on Wednesday, as signs of easing geopolitical tensions between the US and Iran improve market sentiment and support risk appetite. The shift in sentiment boosts demand for the higher-yielding British Pound (GBP) while weighing on the Japanese Yen (JPY), allowing the cross to snap its four-day losing streak.

At the time of writing, GBP/JPY is trading around 210.82, up nearly 0.43% on the day.

US President Donald Trump, speaking from the Oval Office, told reporters that the United States “will be leaving Iran very soon,” adding that military action could end within “two or three weeks.” His comments came after Iranian President Masoud Pezeshkian said on Tuesday that Iran has the “necessary will” to end the conflict, but wants guarantees to make sure the war does not happen again.

On the data front, the UK S&P Global Manufacturing Purchasing Managers Index (PMI) came in at 51.0 in March, below the forecast of 51.2 and the flash estimate of 51.4, though it remained above the 50.0 threshold for a fifth consecutive month.

However, S&P Global Market Intelligence Director Rob Dobson noted that manufacturing output contracted for the first time in six months, as the Middle East conflict and ongoing domestic policy concerns weighed on production.

In Japan, the Manufacturing PMI was revised higher to 51.6 in March from a preliminary estimate of 51.4, though it slipped from a 45-month high of 53.0 in February. Meanwhile, the Tankan Large Manufacturing Index rose to 17 in the first quarter, beating expectations of 16, while the outlook index came in at 14, down from 15 but still above the forecast of 13.

Traders also digested comments from Andrew Bailey, Governor of the Bank of England (BoE), who said markets may be getting ahead of themselves in pricing in interest rate hikes. He added that the central bank will act if appropriate, but stressed that addressing the root cause of the energy price shock is most important. Bailey also noted that policymakers may debate a precautionary rate increase, though any decision will depend on how best to return inflation to target.

Meanwhile, Bank of Japan (BoJ) policymaker Toichiro Asada said that rising Oil prices are putting upward pressure on inflation while weighing on growth, creating a “stagflationary trend.” He added that “how to deal with stagflationary situation is difficult question for monetary policy.”