The Pound Sterling (GBP) dropped against the Japanese Yen (JPY) after the UK’s latest employment data came out. The subsequent release of claimant count data revealed a much larger and completely unanticipated spike in the claimant count. During the early European session on Tuesday, the GBP/JPY cross fell to just above 195.65. This rapid fall raised the curtains on the market’s quick reaction time to the most recent economic data. As analysts pointed out, the figures were well below expectations, causing resulting selling pressure on the GBP to intensify.
More importantly, the Claimant Count Change, which is a key high frequency tracker of employment churns, came out at +33.1K for May. This new figure is a sharp counterpoint to the former Claimant Count Change of -21.2K. That’s 3,000 fewer than the previous estimate of 5.2K. The consensus forecast was for a modest increase of 9.5K. What ended up happening was much worse than that.
Market Reaction to Employment Data
GBP was immediately loaded with fresh sellers in the immediate aftermath of the employment report, as traders reacted to the disappointing figures. This increase in claimant count is a direct result of a downturning labour market and adds to the increasing worry about an oncoming recession here in the UK. In the wake of this news, analysts foresee more volatility in the currency pair as traders adjust their trades.
Further increases revealed by the claimant count data brought the UK Unemployment Rate back up over 4%. It rose to 4.6% for the three months ending in April. This doubling down acts as a distance brake on yellowhammeron, stoking continuing worries about the UK economy. It is likely to inform the Bank of England’s future monetary policy decisions too. Economy Traders are now watching closely to see how these employment numbers will affect other economic indicators moving forward.
The bond market registered the data with concern and alarm. Yields on UK government bonds fell sharply as investors rushed towards safer assets amid heightened economic uncertainty. This flight to safety played a role in worsening GBP’s weakness against JPY.
Japanese Yen Strengthens Ahead of Policy Meeting
The Japanese Yen has received underlying support from hawkish expectations for the Bank of Japan (BoJ). The BoJ just announced a two-day policy meeting, starting next week. There is a great deal of expectation in the market about seeing discussions of possible rate hikes returning on the back of some stronger economic data. Nonetheless, the stronger-than-expected upward revision of Japan’s Q1 GDP has certainly gone a long way to boosting optimism. It solidified expectations for a more hawkish monetary policy.
Japan’s Cabinet Office recently reported that the country’s GDP shrank at an annual rate of 0.2% in Q1, an improvement from an initial estimate that indicated a more substantial fall of 0.7%. The downwardly revised numbers came in line with market expectations for a contraction during this period. Still, they are further signs that Japan’s economic recovery is tenuous.
Better-than-expected GDP data is fueling exuberance in the markets. At the same time, hopes for BoJ hawkishness are proving to be a growing headwind for the GBP/JPY cross. The JPY’s strength is likely to persist as traders position themselves ahead of potential rate hikes, creating further challenges for the Pound Sterling.
Upcoming Economic Indicators
Currency traders have been looking forward to Friday morning’s advance UK Gross Domestic Product (GDP) data for April. It’s scheduled to be unveiled this Thursday! This information will bring new perspectives on the current and future health of the UK economy which may directly impact future currency moves. Indeed, some analysts are warning that an even more disappointing GDP reading might deepen the GBP – JPY’s ongoing woes.
Should the GDP data beat expectations, we could see the Pound Sterling receive a welcome reprieve. This positive surprise will go a long way to making up for its troubling recent backslide. Market participants will have an interest in how this data continues to dovetail with employment data and the overall sentiment in the economy.