• The GBP/JPY takes a step up to reclaim green territory for the day.
• Downside risks remain, but easing Yen flows are helping to prop up the pair.
• UK data continues to disappoint, but inflation risks remain a sticking point, keeping rate expectations elevated.

The GBP/JPY is seeing some topside action as the Pound Sterling (GBP) holds the high side against the Japanese Yen (JPY), but it’s been back-and-forth action on mixed market expectations for both currencies for the mid-week trading session.

The Sterling fell to a session low of 183.20 early in Wednesday trading but has since recovered, chalking in a near-term high of 184.40 in the American trading session. The Guppy now trades into the middle, waffling into the 184.00 handle.

The economic calendar has seen some struggles for the GBP, with key indicators for the United Kingdom (UK) generally missing the mark. Industrial Production figures for July missed the mark, declining 0.7% versus the expected -0.6%, and well below the previous printing of 0.5%, erasing all of the previous month’s growth. 

UK data continues to disappoint, but inflation pressures continue to complicate the BoE's path forward

Manufacturing Production for July managed to squeeze out a topside surprise, but still printed in contraction territory, coming in at -0.8% against the expected -1%. The indicator is steeply off the previous month’s 2.4% reading.

Gross Domestic Product (GDP) figures for the month of July also threw a wrench in the works, printing a 0.5% decline against the expected -0.2%, and walking back the previous period’s 0.5% increase.

Despite the lagging economic data, the Bank of England (BoE) remains in a tough spot, and market bets of continued rate hikes are increasing. Despite a wobbly economic outlook, the UK is still facing inflation pressures via rising wages, and the BoE could be forced to continue raising benchmark rates in the near term. The UK is already facing some of the highest interest rates in the G7, and continued rate hikes could threaten to tip the economy deeper into recession territory even as the BoE tries to plug the bleed from inflation.

The GBP/JPY is being helped by a receding Yen that is taking steps lower in the market as investors cool off after overextended risk appetite brought on by rate-bullish comments from the Bank of Japan (BoJ) recently. The BoJ’s Governor Kazuo Ueda hit newswires last weekend cautioning that the BoJ could be on pace to reverse their long-standing negative rate policy if economic data points to the Japanese central bank maintaining their 2% inflation target in a meaningful way.

Markets lurched on the news, sending the Yen clambering up the charts in the early week, but things are beginning to unwind. Japanese inflation, while currently holding above the BoJ’s desired level, is expected to slump in the coming months, and there are concerns the BoJ won’t be able to keep price growth at a healthy level heading into the end of the year