British Pound drops against Japanese Yen after UK labor market data
- GBP/JPY falls slightly to near 208.60 after the release of the UK employment data for three months ending July.
- UK’s Unemployment Rate and Average Earnings Excluding Bonuses growth remain steady at 4.9% and 3.5% YoY, respectively.
- Investors await BoE and BoJ’s monetary policy outcomes this week.
The British Pound (GBP) faces slight selling pressure against the Japanese Yen (JPY), dropping to near 208.60 on Tuesday after the release of the United Kingdom (UK) labor market data for three months ending July.
The Office for National Statistics (ONS) has reported that the ILO Unemployment Rate remained steady at 4.9%, while it was expected to increase to 5%. In the quarter ending July period, the economy created 67K fresh jobs, lower than 83K in three months ending June.
Average Earnings Excluding Bonuses, a key measure of wage growth, rose steadily by 3.5% Year-on-Year (YoY), as expected. The wage growth measure Including Bonuses also grew in line with estimates of 3.9%, slower than the previous reading of 4.2%, revised higher from 4.1%.
Steady wage growth data is unlikely to have a meaningful impact on Bank of England’s (BoE) interest rate expectations.
This week, major triggers for the Pound Sterling are the Consumer Price Index (CPI) data for August, and the BoE’s policy decision on Wednesday and Thursday, respectively.
Strategists at Scotiabank bote that market participants look to Thursday’s BoE where policymakers are widely expected to deliver a hawkish hold while leaning toward a 25bpt hike at the next meeting in early November.”
On the Tokyo front, investors await Bank of Japan’s monetary policy outcome on Friday.
BoJ seen delivering pre-emptive September hike while tempering hawkish tone
Analysts at Standard Chartered expect the BoJ to take another step along its normalisation path at the 17-18 September meeting, forecasting that the central bank will "raise the policy rate by 25bps to 1.25%," but stress that officials are likely to "avoid an overly hawkish message" as they balance further tightening with Japan’s structurally modest growth outlook and fiscal constraints.
Pound Sterling FAQs
The Pound Sterling (GBP) is the oldest currency in the world (886 AD) and the official currency of the United Kingdom. It is the fourth most traded unit for foreign exchange (FX) in the world, accounting for 12% of all transactions, averaging $630 billion a day, according to 2022 data. Its key trading pairs are GBP/USD, also known as ‘Cable’, which accounts for 11% of FX, GBP/JPY, or the ‘Dragon’ as it is known by traders (3%), and EUR/GBP (2%). The Pound Sterling is issued by the Bank of England (BoE).
The single most important factor influencing the value of the Pound Sterling is monetary policy decided by the Bank of England. The BoE bases its decisions on whether it has achieved its primary goal of “price stability” – a steady inflation rate of around 2%. Its primary tool for achieving this is the adjustment of interest rates. When inflation is too high, the BoE will try to rein it in by raising interest rates, making it more expensive for people and businesses to access credit. This is generally positive for GBP, as higher interest rates make the UK a more attractive place for global investors to park their money. When inflation falls too low it is a sign economic growth is slowing. In this scenario, the BoE will consider lowering interest rates to cheapen credit so businesses will borrow more to invest in growth-generating projects.
Data releases gauge the health of the economy and can impact the value of the Pound Sterling. Indicators such as GDP, Manufacturing and Services PMIs, and employment can all influence the direction of the GBP. A strong economy is good for Sterling. Not only does it attract more foreign investment but it may encourage the BoE to put up interest rates, which will directly strengthen GBP. Otherwise, if economic data is weak, the Pound Sterling is likely to fall.
Another significant data release for the Pound Sterling is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought-after exports, its currency will benefit purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.
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