GBP/JPY remains tepid near 190.50 following key economic figures from United Kingdom

GBP/USD remains under pressure as UK GDP shows growth in December but falls short of market expectations.
The yield on the UK 10-year Gilt dropped to 4.73%, pulling back from multi-decade highs.
The Japanese Yen strengthens as expectations rise for the BoJ to raise interest rates next week.

Akhtar Faruqui FXStreet

GBP/JPY continues to lose ground for the second successive day, trading around 190.60 during the early European hours. The GBP/JPY cross loses ground as the Pound Sterling (GBP) faces challenges following the disappointing economic data from the United Kingdom (UK) on Thursday.

The UK economy returned to growth in November, with Gross Domestic Product (GDP) rising by 0.1%, following a 0.1% contraction in October. However, this fell short of market expectations for a 0.2% expansion.

Meanwhile, the Index of Services for October remained unchanged at 0% 3M/3M, compared to October's 0.1%. In November, Monthly Industrial and Manufacturing Production declined by 0.4% and 0.3%, respectively, with both readings coming in below market expectations.

Additionally, the GBP received downward pressure as the yield on the UK 10-year Gilt fell to 4.73%, retreating from multi-decade highs, after official data showed an unexpected drop in headline UK inflation, increasing expectations of rate cuts by the Bank of England (BoE).

The UK Consumer Price Index (CPI) increased by 2.5% year-over-year in December, down from 2.6% in November and below the market forecast of 2.7%. Despite the slowdown, the figure remained above the Bank of England’s (BoE) 2% target.

Moreover, the Japanese Yen (JPY) appreciates amid growing expectations that the Bank of Japan (BoJ) will hike interest rates next week. These speculations have driven yields on Japanese Government Bonds (JGBs) to multi-year highs.

Bloomberg reported on Thursday, citing unnamed sources, that the BoJ is likely to raise interest rates next week unless a significant market disruption occurs following the inauguration of US President-elect Donald Trump.

BoJ Governor Kazuo Ueda reiterated that the central bank will discuss the possibility of a rate hike next week and may increase the policy rate this year if economic and inflation conditions continue to improve. Key factors influencing the BoJ’s decision include the policy direction of the new US administration and domestic wage negotiations.

Economic Indicator

Gross Domestic Product (MoM)

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 MoM reading compares economic activity in the reference month to the previous month. Generally, a rise in this indicator is bullish for the Pound Sterling (GBP), while a low reading is seen as bearish.

EUR/USD deflates to fresh lows, targets 1.1600

The selling pressure on EUR/USD now gathers extra pace, prompting the pair to hit fresh multi-week lows in the 1.1625-1.1620 band on Friday. The continuation of the downward bias comes in response to further gains in the US Dollar as market participants continue to assess the mixed release of US Nonfarm Payrolls in December.

GBP/USD breaks below 1.3400, challenges the 200-day SMA

GBP/USD remains under heavy fire and retreats for the fourth consecutive day on Friday. Indeed, Cable suffers the strong performance of the Greenback, intensified post-mixed NFP, and trades at shouting distance from its critical 200-day SMA near 1.3380.

Gold flirts with yearly tops around $4,500

Gold keeps its positive bias on Friday, adding to Thursday’s advance and challenging yearly highs in the $4,500 region per troy ounce. The risk-off sentiment favours the yellow metal despite the firmer tone in the Greenback and rising US Treasury yields.