GBP/JPY flat lines below 213.00; looks to UK PMIs for fresh impetus

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The GBP/JPY cross reverses an intraday dip to the 212.30-212.25 region and climbs to the top end of its daily range heading into the European session on Tuesday.

GBP/JPY attracts some dip-buyers as softer National CPI from Japan undermines the JPY.
The BoE’s hawkish signal supports the GBP and offers additional support to spot prices.
Traders look to the UK PMIs for cues about the economic health and a fresh impetus.

The GBP/JPY cross reverses an intraday dip to the 212.30-212.25 region and climbs to the top end of its daily range heading into the European session on Tuesday. Spot prices, however, lack follow-through and currently trade around the 212.65-212.70 area, nearly unchanged for the day, as traders now look to the flash UK PMIs for some impetus.

The monthly indicator would offer a snapshot of the business activity in the manufacturing and services sector, and assist investors in assessing the health of the economy amid concerns about supply chain disruptions due to the Middle East conflict. This, in turn, will play a key role in influencing the British Pound (GBP) and produce short-term trading opportunities around the GBP/JPY cross.

In the meantime, the Bank of England's (BoE) hawkish outlook, signaling the potential rate hike as early as April amid inflation fears stemming from the Iran war, supports the GBP. The Japanese Yen (JPY), on the other hand, is weighed down by data that the National CPI fell to its lowest level since March 2022, which dampened hopes for an immediate rate hike by the Bank of Japan (BoJ).

Adding to this, concerns that the war-driven surge in energy prices could further weaken Japan's economic growth further undermine the JPY, which, in turn, is seen acting as a tailwind for the GBP/JPY cross. However, speculations that Japanese authorities could intervene to stem further JPY weakness hold back traders from placing aggressive bullish bets around the currency pair and cap gains.

The fundamental backdrop, however, seems tilted in favor of bullish traders and backs the case for an extension of the GBP/JPY pair's recent move up from the 100-day Simple Moving Average (SMA) support near the 207.25 area, touched in February. That said, it will be prudent to wait for a sustained strength beyond the 213.00 mark before positioning for further appreciation.

Economic Indicator

S&P Global Composite PMI

The Composite Purchasing Managers Index (PMI), released on a monthly basis by 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.