GBP/JPY moves below 199.00 as UK GDP falls against expected expansion

GBP/JPY edges lower as the United Kingdom (UK) economy declines in May, remaining in the positive territory and trading around 199.20 during the Asian hours on Friday. The UK Gross Domestic Product (GDP) declined 0.1%, following a 0.3% drop in April, against the market consensus of 0.1% growth.

The Index of services (May) arrived at 0.4% 3M/3M versus April’s 0.6%. Meanwhile, the monthly Industrial and Manufacturing Production came in at -0.9% and -1%, respectively, in May. Both readings fell short of market expectations.

The GBP/JPY cross may further lose ground as the Pound Sterling (GBP) struggles due to rising economic concerns in the United Kingdom (UK). The Bank of England (BoE) warned of multiple risks in its mid-year Financial Policy Committee (FPC) report on Wednesday.

FPC committee said, "The risk of sharp falls in risky asset prices, abrupt shifts in asset allocation, and a more prolonged breakdown in historical correlations remains high." The committee highlighted geopolitical tensions, global fragmentation of trade and financial markets, and pressures on sovereign debt as responsible for escalating economic risks in the UK.

The GBP/JPY cross also draws support as the Japanese Yen (JPY) faces challenges due to escalating trade tensions, heightened risks to Japan’s economy. Japan faces a punishing 25% tariff on all exports to the United States (US) amid stalled US-Japan trade negotiations, particularly over Japan’s protection of its rice market. Japan's Producer Price Index (PPI) released earlier this Thursday, hinted that inflation pressures might be cooling off, which might force the Bank of Japan (BoJ) to avoid raising interest rates this year.