GBP/JPY struggles for a firm intraday direction, flat lines around 199.00 mark

GBP/JPY oscillates in a range during the Asian session amid mixed fundamental cues.
Easing fiscal concerns and stronger UK Services PMI act as a tailwind for the Sterling.
BoJ rate hike ambiguity and domestic political uncertainty keep the JPY depressed.
The divergent BoJ-BoE policy expectations might keep a lid on any upside for spot prices.

Haresh Menghani FXStreet

The GBP/JPY cross lacks a firm intraday directional bias on Thursday and seesaws between tepid gains/minor losses, around the 199.00 mark during the Asian session on Thursday.

UK finance minister Rachel Reeves said on Wednesday that she would keep a grip on spending to lower inflation and borrowing costs. This helped ease worries over the health of government finances, fueled by the recent steep selloff in UK government bonds. Apart from this, the stronger-than-expected UK Services PMI released on Wednesday turns out to be a key factor offering some support to the British Pound (GBP) and the GBP/JPY cross.

The Japanese Yen (JPY), on the other hand, is undermined by domestic political uncertainty and the Bank of Japan (BoJ) rate-hike ambiguity. In fact, comments from BoJ Deputy Governor Ryozo Himino on Tuesday suggested that the central bank is in no rush to push up still-low borrowing costs. However, BoJ Governor Kazuo Ueda showed readiness to continue raising interest rates if the economy and prices move in line with the central bank's projections.

Moreover, investors seem convinced that the BoJ will stick to its policy normalization path on the back of firm wage growth, still sticky inflation, and a brighter economic outlook. In contrast, the Bank of England (BoE) Governor Andrew Bailey indicated that interest rates would continue to move downwards gradually over time. The divergent outlook, in turn, is holding back traders from placing aggressive bets and acting as a headwind for the GBP/JPY cross.

Traders now look forward to the release of the UK Construction PMI for some impetus during the European session on Thursday. The focus will then shift to the wage growth data from Japan, which will play a key role in influencing market expectations about the likely timing of the next BoJ rate hike. This, in turn, will drive the JPY price dynamics and determine the near-term trajectory for the GBP/JPY cross.

Economic Indicator

S&P Global Construction PMI

The Construction Purchasing Managers Index (PMI), released on a monthly basis by S&P Global, is a leading indicator gauging business activity in the UK’s construction sector. The data is derived from surveys of senior executives at private-sector companies from the services sector. 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), 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 construction sector is generally expanding, a bullish sign for the Pound Sterling (GBP). Meanwhile, a reading below 50 signals that activity among builders is generally declining, which is seen as bearish for GBP.

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