- GBP/JPY reached nearly 197.35 after reconsidering a level of around 198.20, which had stood for almost six months.
- Falling oil prices have increased demand for the Japanese yen.
- Positive UK PMI data for June supports the British pound.
The GBP/JPY currency pair slightly altered to near 197.35 during Tuesday’s European trading session, previously eyeing that six-month high close to 198.20. After the ceasefire between Israel and Iran, the cross is seeing some sales pressure as the Japanese yen profits, largely due to a notable drop in oil prices.
On Monday, Japan’s currency weakened against others as crude oil prices surged following Iran’s threats regarding the Strait of Hormuz. With the Japanese economy reliant on oil imports, rising energy costs lessen the yen’s appeal.
Meanwhile, the British pound is performing well against its major peers, except certain Asia-Pacific currencies. This shift comes on the back of recently released preliminary S&P Global PMI data, which show that composite PMI grew faster than expected, thanks to strong performance in both the manufacturing and services sectors.
The Services PMI was forecast to be 51.3, exceeding May’s figure of 50.9. However, manufacturing PMI dipped to around 47.7, but at a slower rate than anticipated.
GBP/JPY is experiencing a pullback after breaking out from a pattern of rising triangles observed on a daily timeframe, leading to wider price movements and heavier trading volumes. The horizontal resistance from this chart formation can be traced back to around 196.41 on May 14, while the upward trend line is around 191.90 starting from May 22.
The 20-day exponential moving average (EMA) indicates an upward slope at roughly 195.50, hinting at a bullish short-term trend.
The 14-day relative strength index (RSI) is above 60.00. Once it goes beyond that mark, we could see new bullish momentum forming.
If the pair manages to extend its gains, it could approach the psychological level of 200.00, potentially hitting a high of 203.16 on July 23, 2024, after surpassing the 198.20 peak on Monday.
Conversely, if the pair dips below 190.33, we might see it target the March 11 low of 188.80, followed by another drop to 187.00 seen on February 7.
GBP/JPY Daily Chart
Pound Sterling FAQ
Pound Sterling (GBP) is known to be the world’s oldest currency (established in 886 AD) and is the official currency of Britain. In 2022, it ranked as the fourth most traded currency globally, making up 12% of all forex transactions, with an average daily trading volume of $630 billion. Its primary trading pair is GBP/USD, often referred to as “cable,” which accounts for 11%, while GBP/JPY is also significant (3%). The currency is issued by the Bank of England (BOE).
The value of the pound is primarily influenced by monetary policy decisions made by the Bank of England. The BOE’s main goal is to maintain price stability, ideally around a 2% inflation rate. Adjustments in interest rates serve as the main tool to achieve this. If inflation is high, the BOE may raise rates, making borrowing costs higher, which can strengthen the GBP as investors are drawn to the UK. Conversely, if inflation is low, they might lower rates to stimulate growth.
Various economic indicators can influence the pound’s value. Metrics such as GDP, manufacturing, services PMI, and employment figures play a role in determining the pound’s trajectory. A robust economy is generally positive for Sterling, attracting foreign investment and possibly prompting the BOE to increase interest rates, thus enhancing GBP’s value. Weak economic data could lead to a decline in the pound’s value.
Another critical factor for Pound Sterling is the trade balance, which signifies the difference between exports and imports. A surplus in trade, driven by desirable exports, can bolster currency strength, while a deficit typically has the opposite effect.
