Key Points:
- GBP/JPY recovered to 197.00 after recent declines due to Japan’s GDP contraction.
- Japan’s Q1 GDP contracted by 0.5%, worse than the expected -0.4%, impacting market sentiment.
- Key support is at the 200-hour EMA near 195.50, with the previous swing low at 191.50.
On Thursday, the GBP/JPY currency pair notably recovered, reaching 197.00. This resurgence follows a decline primarily attributed to Japan’s recent GDP contraction. The economic contraction peaked at -0.5% for Q1 and was slightly worse than the market forecast of -0.4%. The revision of the previous quarter’s growth dropped to 0.0% from an earlier estimate of 0.1%. This downward revision added to the negative sentiment, but the market has responded positively, reflecting a GBP/JPY exchange rate recovery.
Japan’s Q1 GDP Falls -0.5%, Revised from Previous 0.0%
Japan’s gross domestic product (GDP) for the first quarter of the year contracted by 0.5%, disappointing analysts who had anticipated a slightly lesser contraction of 0.4%. This contraction marks a significant deviation from the previous quarter, which saw an initially reported growth of 0.1%, later revised to zero.
The larger-than-expected economic shrinkage indicates underlying weaknesses in Japan’s economy, prompting concerns among investors. Traders have already factored this economic data into the market, allowing for a GBP/JPY pair recovery as they adjusted their positions.
UK CPI Update and BoE Governor’s Speech to Impact GBP/JPY
Next week, two key events are poised to influence market sentiment and trading strategies. The authorities will release the UK Consumer Price Index (CPI) inflation update. This update is crucial as it provides insight into inflationary pressures within the UK economy, potentially affecting monetary policy decisions by the Bank of England (BoE).
Secondly, BoE Governor Andrew Bailey is set to deliver a speech at the London School of Economics on Tuesday. Market participants will closely monitor his remarks for any indications regarding future rate cuts by the BoE. Both events are expected to affect the GBP/JPY currency pair significantly.
GBP/JPY at 197.00; Key Support at 195.50 and 191.50
From a technical perspective, the GBP/JPY currency pair’s price level on Thursday stood at 197.00. The key support level to watch is the 200-hour exponential moving average (EMA), currently near 195.50. This level acts as a critical support zone for the pair. Additionally, the pair recently moved 3% higher from the previous swing low at 191.50, making it an important reference point. The current trend suggests that bulls are stepping in, reflecting a positive momentum that could sustain the pair’s upward movement.
