The pound has been hit hard today, following a raft of European PMI surveys which included declines for both services and manufacturing figures in the UK. Economic weakness to some extent can be viewed through the prism of potential implications on monetary policy, with the Bank of England perhaps more hesitant to enact a 50-basis point hike should they face a sharp economic contraction. With UK CPI having declined from 8.7% to 7.9% last week, there is an element of GBP longs being unwound. However, it is worthwhile noting that UK core inflation remains stubbornly elevated, with the latest decline of 0.2% taking the figure to 6.9%. Thus the Bank of England has plenty to do if they are to return CPI to anywhere near their 2% target.
Notably, today's PMI figures have also highlighted that the critical services sector remains inflationary thanks to elevated wage growth, which rose to 6.9%. The benefits from falling input prices are helpful for manufacturing businesses, but that presents more of a benefit for the likes of Germany or Italy. With the BoE well aware of the ongoing threat posed by stubbornly high inflation, there is a good chance they do in fact enact a 50-basis point hike next month.
Meanwhile, the Bank of Japan appears steadfast in its loose monetary policy stance. With Japanese wage growth at a mere 2.5%, there is a risk that the PPI-led disinflation seen for other manufacturing-heavy nations could similarly be seen in Japan. Should that result in a decline in Japanese inflation, we could yet see another bout of JPY weakness. With that in mind, watch out for the BoJ core CPI reading due overnight, with markets predicting a decline to 3% (from 3.1%) after three-consecutive increases.
From a charting perspective, the recent pullback in GBPJPY brings questions over whether the pair is in retracement mode or due a more protracted period of weakness. With price having respected the 61.8% Fibonacci support level thus far, there is a good chance that this pullback brings the bulls back into play. Whether we see the 61.8% or 76.4% form the source of the next upside move, the pair does look likely to find support around this area. A break below $179.745 would be needed to signal an impending period of weakness for the pair.
Notably, today's PMI figures have also highlighted that the critical services sector remains inflationary thanks to elevated wage growth, which rose to 6.9%. The benefits from falling input prices are helpful for manufacturing businesses, but that presents more of a benefit for the likes of Germany or Italy. With the BoE well aware of the ongoing threat posed by stubbornly high inflation, there is a good chance they do in fact enact a 50-basis point hike next month.
Meanwhile, the Bank of Japan appears steadfast in its loose monetary policy stance. With Japanese wage growth at a mere 2.5%, there is a risk that the PPI-led disinflation seen for other manufacturing-heavy nations could similarly be seen in Japan. Should that result in a decline in Japanese inflation, we could yet see another bout of JPY weakness. With that in mind, watch out for the BoJ core CPI reading due overnight, with markets predicting a decline to 3% (from 3.1%) after three-consecutive increases.
From a charting perspective, the recent pullback in GBPJPY brings questions over whether the pair is in retracement mode or due a more protracted period of weakness. With price having respected the 61.8% Fibonacci support level thus far, there is a good chance that this pullback brings the bulls back into play. Whether we see the 61.8% or 76.4% form the source of the next upside move, the pair does look likely to find support around this area. A break below $179.745 would be needed to signal an impending period of weakness for the pair.
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Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.