FX

GBP/JPY sees downside below 162.00 on lower consensus for UK GDP

  • GBP/JPY is expected to report more losses after a downside move below 162.00.
  • Vulnerable expectations for the UK economic data will keep the sterling bulls on the back foot.
  • Japan’s cabinet re-shuffle is expected to result in a dramatic change in the Japanese yen on a broader basis.

The GBP/JPY pair has dropped sharply after facing barricades around the critical hurdle of 162.80. Earlier, the cross delivered a downside break of the balance auction formed in a 162.58-163.84 range.  Upon establishment of a downside bias, the asset is expected to extend its losses after violating the immediate support of 162.00.

Investors are paring their positions in the pound amid lower estimates for the UK Gross Domestic Product (GDP) data which is due on Friday. The market participants see a shrink in the second quarter by 0.2% against the expansion of 0.3%. Also, the UK economy is expected to shrink by 1.3% against the expansion of 0.5% on a monthly basis. Adding to that, the estimate for annual GDP is 2.8%, significantly lower than the prior print of 8.7%.

Observing the other economic data, an underperformance is expected on the Manufacturing production front. The annual data is likely to slip lower to 1.3% vs. the prior release of 2.3%. Whereas, Industrial Production could display an uptick to 1.6% from 1.4% annually.

Investors are preferring to remain on the sidelines from sterling due to an expected underperformance on the critical economic data front.

On the Tokyo front, the ongoing cabinet re-shuffle is expected to result in a dramatic change in the situation of the Japanese yen on a broader basis.  The Bank of Japan is worried over the subdued Labor Cost Index as it is critical for keeping the inflation rate above the desired levels. Finance Minister Shunichi Suzuki said that Japan’s financial position is still severe. He added that “it’s critical to continue reacting to covid and inflation.”

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