British Pound trades firmly against Japanese Yen ahead of UK flash PMI data

GBP/JPY clings to Thursday’s gains around 217.00 ahead of the UK preliminary S&P Global PMI data for August.
The UK Composite PMI is expected to come in lower at 51.6 from 52.2 in July.
Hotter-than-expected Japan’s National CPI report supports hawkish BoJ expectations.

Sagar Dua FXStreet

The British Pound (GBP) holds onto Thursday’s gains at around 217.00 against the Japanese Yen (JPY) during the European trading session on Friday. The GBP/JPY pair trades firmly ahead of the United Kingdom (UK) preliminary S&P Global Purchasing Managers’ Index (PMI) data for August, which will be published at 08:30 GMT.

The S&P Global PMI report is expected to show that overall business activity expanded again, but at a moderate pace, due to a slowdown in both manufacturing and service sector activity. The Composite PMI is seen arriving at 51.6, lower than 52.2 in July.

Earlier in the day, the UK Office for National Statistics (ONS) reported weak Retail Sales data for July. Month-on-Month (MoM) Retail Sales, a key measure of consumer spending, declined by 0.5%, as expected, against a 0.7% growth in June. On an annualized basis, the consumer spending measure grew at a slower pace of 1.6% vs. 2.2% estimates and the previous reading of 4.2%.

Weak Retail Sales data suggests higher inflationary pressures are limiting households’ spending power, which seems to amplify troubles for Bank of England (BoE) officials.

This week, the UK Consumer Price Index (CPI) data for July showed that headline inflation accelerated to 2.9% YoY from 2.6% YoY in June.

On the Tokyo front, the Japanese Yen (JPY) struggles to gain traction even as higher-than-expected Japan National CPI data is expected to reinforce Bank of Japan (BoJ) interest rate hike expectations.

Commerzbank’s Volkmar Baur points to a similar picture across the broader inflation complex, observing that “the overall inflation rate rose to 1.9%, and the picture is similar for core rates - excluding fresh food (1.8%) and, additionally, excluding energy (1.9%) - with the rate of price increases appearing to stabilize at the desired 2%.”

“Together, the latest readings underscore that while inflation is being restrained by government support measures, it is now hovering close enough to the BoJ’s objective to keep the timing and extent of any further rate moves firmly in focus,” Baur added.

Economic Indicator

S&P Global Composite PMI

The Composite Purchasing Managers Index (PMI), released on a monthly basis by S&P Global, is a leading indicator gauging private-business activity in UK for both the manufacturing and services sectors. The data is derived from surveys to senior executives. Each response is weighted according to the size of the company and its contribution to total manufacturing or services output accounted for by the sub-sector to which that company belongs. Survey responses reflect the change, if any, in the current month compared to the previous month and can anticipate changing trends in official data series such as Gross Domestic Product (GDP), industrial production, employment and inflation.The index varies between 0 and 100, with levels of 50.0 signaling no change over the previous month. A reading above 50 indicates that the UK private economy is generally expanding, a bullish sign for the Pound Sterling (GBP). Meanwhile, a reading below 50 signals that activity is generally declining, which is seen as bearish for GBP.

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