GBP/JPY trades with modest gains near daily high, around mid-190.00s ahead of UK PMIs

GBP/JPY regains positive traction on Thursday and draws support from a combination of factors.
A positive risk tone, along with the BoJ rate-hike uncertainty, undermines the safe-haven JPY.
Diminishing odds for a BoE rate cut in September benefit the GBP and further act as a tailwind.

The GBP/JPY cross attracts some dip-buying near the 189.65-189.60 region on Thursday and climbs to the daily peak during the early part of the European session. Spot prices currently trade just below the mid-190.00s and remain confined in a familiar range held over the past week or so, below the very important 200-day Simple Moving Average (SMA).

The British Pound (GBP) continues to draw support from diminishing odds for another interest rate cut by the Bank of England (BoE) following last week’s UK inflation and labor market data. This, along with the upbeat UK GDP print, points to a resilient economy and fueled speculations that the BoE might keep rates unchanged at the September meeting. Furthermore, a generally positive risk tone is seen undermining the safe-haven Japanese Yen (JPY) and acting as a tailwind for the GBP/JPY cross.

The JPY is further weighed down by domestic political uncertainty led by Japanese Prime Minister Fumio Kishida’s decision to step down, which could lead to a pause in the Bank of Japan’s (BoJ) plan to raise interest rates steadily. Investors, however, seem convinced that an improving macroeconomic environment in Japan should encourage the BoJ to raise rates again later this year. This, along with persistent geopolitical risks, should limit any meaningful JPY fall and keep a lid on the GBP/JPY cross.

Market participants now look forward to the release of the flash UK PMIs for short-term trading opportunities. Meanwhile, the focus will then shift to the release of the Japanese Nationwide CPI print on Friday. Furthermore, BoE Governor Andrew Bailey’s appearance at the Jackson Hole Symposium on Friday will infuse some volatility and provide some meaningful impetus to the GBP/JPY cross.

Economic Indicator

S&P Global/CIPS Composite PMI

The Composite Purchasing Managers Index (PMI), released on a monthly basis by the Chartered Institute of Procurement & Supply and 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.