British Pound moves little after UK GDP as intervention risks support Yen

GBP/JPY holds steady on Thursday as the prevailing JPY selling bias continues to lend support.
GBP bulls remain on the sidelines as a strong USD rally offsets mostly upbeat UK macro data.
Looming intervention risks help limit any further JPY losses, capping the upside for spot prices.

Haresh Menghani FXStreet

The GBP/JPY cross reverses a modest intraday dip, climbing back to the 212.00 mark during the early European session on Thursday, though it remains confined within a range held over the past week or so. Spot prices react little to upbeat UK macro releases, with the prevailing selling bias surrounding the Japanese Yen (JPY) acting as a tailwind amid looming intervention risks.

The Office for National Statistics (ONS) published the first quarterly estimate of Gross Domestic Product (GDP), which showed that the UK economy grew by 0.7% during the July to September period. Meanwhile, the yearly rate stood at 1.9%, which marks a notable acceleration from 1.4% YoY in the previous quarter. Other UK data showed that Industrial Production increased 0.3%, while Manufacturing Production rose 0.7% in September, both coming in stronger than market expectations. The data, however, fails to provide any respite to the British Pound (GBP) amid a bullish US Dollar (USD).

Meanwhile, the JPY continues to underperform despite firming expectations of further Bank of Japan (BoJ) tightening, bolstered by a rise in Japan's Corporate Goods Price Index (CGPI) for the first rise in three months. The wide interest rate differential between Japan and other major economies, including the UK, keeps the so-called carry trade active and continues to undermine the JPY. In fact, the BoJ policy rate is at 1.25%, while the Bank of England (BoE) raised its base rate to 4.00%, leaving the nominal rate differential of 275 basis points (bps), preserving yield advantage for the GBP.

Meanwhile, Japan's top currency diplomat Atsushi Mimura warned against excessive FX volatility, fueling intervention risks and holding back JPY bears from placing aggressive bets. This, in turn, acts as a headwind for the GBP/JPY cross, though the fundamental backdrop seems tilted firmly in favor of bulls. However, some follow-through buying is needed to back the case for additional gains. Nevertheless, any corrective pullback might still be seen as a buying opportunity and is more likely to be limited.

Economic Indicator

Gross Domestic Product (QoQ)

The Gross Domestic Product (GDP), released by the Office for National Statistics on a monthly and quarterly basis, is a measure of the total value of all goods and services produced in the UK during a given period. The GDP is considered as the main measure of UK economic activity. The QoQ reading compares economic activity in the reference quarter to the previous quarter. Generally, a rise in this indicator is bullish for the Pound Sterling (GBP), while a low reading is seen as bearish.

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