- GBP/JPY extends its winning streak following the release of UK economic data.
- UK gross domestic product expanded by 0.6% quarter-on-quarter in the second quarter, as expected, compared with 0.7% growth in the first quarter.
- The pair’s upside could be limited as the JPY receives support from a hawkish sentiment around the BoJ.
GBP/JPY continues to gain ground for the fourth consecutive session, trading around 189.30 during early European hours on Thursday. The GBP/JPY pair’s rise could be attributed to positive key economic data, including the UK Gross Domestic Product (GDP) data.
The UK economy expanded by 0.6% quarter-on-quarter in the second quarter, as expected. There was 0.7% growth in the first quarter. Meanwhile, GDP rose by 0.9% year-on-year in the second quarter versus 0.9% expected and 0.3% in the first quarter. GDP rose by 0% month-on-month in June, as expected, versus the 0.4% increase reported in May.
On the output side, UK industrial production grew by 0.8% month-on-month in June, comfortably beating market forecasts for a 0.1% rise and accelerating from the 0.3% increase recorded in the previous month. Meanwhile, manufacturing output rose by 1.1% month-on-month, beating the expected 0.1% increase. This marked the strongest expansion since February.
Finance Minister Rachel Reeves has set a formal target for the UK to achieve the fastest GDP per capita growth among the Group of Seven (G7) advanced economies for two years running. However, figures on Thursday showed output per head in the second quarter was 0.1% lower than a year earlier and 0.8% below pre-pandemic levels.
Minister Reeves said the latest data underlined the challenges facing the new government and reiterated her stance that tough decisions would be needed to improve economic fundamentals, Reuters reported.
The GBP/JPY upside could be limited as the Japanese Yen (JPY) is supported by Japan’s GDP growth that exceeded expectations in the second quarter. This supports the argument for a possible short-term interest rate hike by the Bank of Japan (BoJ).
Japanese Economic Minister Yoshitaka Shindo said the economy is expected to gradually recover as wages and incomes improve. He also mentioned that the government will work closely with the Bank of Japan to implement flexible macroeconomic policies.
GDP FAQs
A country’s gross domestic product (GDP) measures the growth rate of its economy over a given period of time, usually a quarter. The most reliable figures compare GDP with the previous quarter (for example, Q2 2023 with Q1 2023) or with the same period a year earlier (for example, Q2 2023 with Q2 2022).
Annualized quarterly GDP figures extrapolate the quarter’s growth rate as if it were constant for the rest of the year. However, they can be misleading if temporary shocks affect growth in one quarter but are unlikely to last the entire year, as was the case in the first quarter of 2020 with the outbreak of the coronavirus pandemic, when growth plummeted.
A higher GDP result is usually positive for a nation’s currency, as it reflects a growing economy, which is more likely to produce goods and services that can be exported, as well as attract more foreign investment. Similarly, when GDP falls it is usually negative for the currency.
When an economy grows, people tend to spend more, which causes inflation. The country’s central bank then has to raise interest rates to combat inflation, with the side effect of attracting more capital inflows from global investors, which helps the local currency appreciate.
When an economy grows and GDP increases, people tend to spend more, which causes inflation. The country’s central bank then has to raise interest rates to combat inflation. Higher interest rates are negative for Gold because they increase the opportunity cost of holding Gold versus putting the money in a cash deposit account. Therefore, a higher GDP growth rate is usually a bearish factor for the price of Gold.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
