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GBP/JPY rises above 194.00 as Japan’s real wages falls in April

  • GBP/JPY appreciates as the Japanese Yen loses ground following the real wages data.
  • Japan’s real wages fell 2.3% YoY in April as persistent inflation outpaced nominal wage growth.
  • Trump signed an executive order to provide UK exporters a temporary relief from the 50% tariffs on steel and aluminium.

GBP/JPY recovers its recent losses registered in the previous session, trading around 194.30 during the European hours on Thursday. The currency cross appreciates as the Japanese Yen (JPY) continues to struggle following the labor market data.

Japan’s real wages declined by 2.3% year-over-year, declining for the fourth successive month in April amid persistent inflation outpacing nominal wage growth. Meanwhile, nominal wages increased 2.3% YoY, remained consistent with the March’s pace but below the market expectations of a 2.6% increase.

The weak employment data, along with the global economic uncertainty amid rising US tariff tensions, deepened Japan’s economic concerns. The Japanese Yen attracts sellers also because the wage data have complicated the Bank of Japan’s (BoJ) path toward policy normalization.

However, the JPY may regain its ground amid growing expectations that the Bank of Japan (BoJ) will hike interest rates. The BoJ Governor Kazuo Ueda expressed willingness to increase interest rates if economic and price data move in line with forecasts.

S&P Global released the UK Composite Purchasing Managers’ Index (PMI), which rose to 50.3 in May, from April’s 48.5 reading. This reading came higher than the preliminary estimate of 49.4. Meanwhile, the Services PMI edged higher to 50.9, indicating a weak but marginal growth.

Moreover, exporters in the United Kingdom (UK) will still face the previous 25% tariff rate, as US President Donald Trump signed an executive order on Tuesday, granting temporary relief to the UK from the steep 50% US tariffs on steel and aluminium.

(The story was corrected on June 5 at 08:40 GMT, to say in the first bullet point that the Japanese Yen loses ground, not gains ground.)

Interest rates FAQs

Interest rates are charged by financial institutions on loans to borrowers and are paid as interest to savers and depositors. They are influenced by base lending rates, which are set by central banks in response to changes in the economy. Central banks normally have a mandate to ensure price stability, which in most cases means targeting a core inflation rate of around 2%. If inflation falls below target the central bank may cut base lending rates, with a view to stimulating lending and boosting the economy. If inflation rises substantially above 2% it normally results in the central bank raising base lending rates in an attempt to lower inflation.

Higher interest rates generally help strengthen a country’s currency as they make it a more attractive place for global investors to park their money.

Higher interest rates overall weigh on the price of Gold because they increase the opportunity cost of holding Gold instead of investing in an interest-bearing asset or placing cash in the bank. If interest rates are high that usually pushes up the price of the US Dollar (USD), and since Gold is priced in Dollars, this has the effect of lowering the price of Gold.

The Fed funds rate is the overnight rate at which US banks lend to each other. It is the oft-quoted headline rate set by the Federal Reserve at its FOMC meetings. It is set as a range, for example 4.75%-5.00%, though the upper limit (in that case 5.00%) is the quoted figure. Market expectations for future Fed funds rate are tracked by the CME FedWatch tool, which shapes how many financial markets behave in anticipation of future Federal Reserve monetary policy decisions.

Author

Akhtar Faruqui

Akhtar Faruqui is a Forex Analyst based in New Delhi, India. With a keen eye for market trends and a passion for dissecting complex financial dynamics, he is dedicated to delivering accurate and insightful Forex news and analysis.

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