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Pound Sterling (GBP) Exchange Rate Forecast: GBP/EUR, GBP/JPY, GBP/CNY Trend Lower after UK Services PMI Drops, BOJ Eases Monetary Policy Fears

The Pound Sterling to Euro (GBP/EUR), Pound Sterling to Japanese Yen (GBP/JPY) and Pound Sterling to Chinese Yuan (GBP/CNY) exchange rates were all trending lower in Wednesday’s European trading after Markit’s UK Services Purchasing Managers Index (PMI) came in below forecasts.

Pound Sterling (GBP) Exchange Rate Flops after UK Services PMI Drops

The Pound (GBP) sank when May’s Services PMI fell to 56.5 from 59.5, rather than softening to 59.2 as predicted.

Markit economist Chris Williamson commented: ‘The surveys point to GDP growing at a quarterly rate of just 0.4% in May, raising doubts about the ability of the economy to rebound convincingly from the weakness seen at the start of the year. The lacklustre growth picture will be a concern to policymakers and effectively kills off the chances of any imminent hiking of interest rates by the Bank of England.’

BoE Interest Rate Hikes Forecast to Cause Major Pound Sterling (GBP) Exchange Rate Fluctuations

Investors are eyeing data from both the US and UK very carefully as they look for rate-hike time frames. Both the UK and US are in close contention to be the first member of the Group of Seven (G7) to increase interest rates since the onset of the global financial crisis. A move by the Bank of England (BoE) could see the Pound Sterling (GBP) exchange rate soar; consequently, any attempt to increase interest rates from the US Federal Reserve would see the US Dollar (USD) rally.

Markit’s Williamson continued: ‘Rate hikes this year should not be ruled out there are signs that the disappointing rate of expansion is only temporary, linked to uncertainty surrounding the general election, and the survey’s point to rising inflationary pressures as well as a further tightening of the labour market.’

Safe-Haven Japanese Yen (JPY) Jumps Following Services Data and BOJ Statements

Meanwhile, the Japanese Yen (JPY) exchange rate was offered some support on Wednesday when Markit’s Japanese Services PMI rose from 51.3 to 51.5 in May. Additionally, the rise in service sector productivity was accompanied by an increase in Japan’s Composite PMI, which climbed from 50.7 to 51.6.

Furthermore, Bank of Japan (BOJ) policymaker Sayuri Shirai also stated that she didn’t expect the central bank to begin expanding its monetary stimulus package imminently, a possibility that’s been dragging the Japanese Yen (JPY) lower in recent weeks.

However, the BOJ policymaker did say that there were threats to the price outlook which could cause problems for the central bank’s inflation target.

Shirai commented: ‘If downside risks materialise and significantly weaken the underlying trend in inflation, I would not hesitate to consider some monetary policy actions. At present, however, I view such a possibility to be low.’

The safe-haven Yen (JPY) was able to climb against a host of other majors including the Pound (GBP) and US Dollar (USD) on the upbeat data and BOJ comments, after playing a rather bearish role in the market of late.

The Japanese Yen to Pound Sterling (JPY/GBP) exchange rate is trending in the region of 0.0053 with market movement of +0.20%.

Chinese Yuan (CNY) Gains Support after Chinese Services PMI Jumps – But Economists Forecast Further Monetary Easing

The Chinese Yuan (CNY) exchange rate also enjoyed some support from Chinese domestic data on Wednesday, allowing it to climb against the Pound (GBP), US Dollar (USD), Japanese Yen (JPY) and Euro (EUR).

China’s HSBC Services PMI came in at a healthy 53.5 in May, climbing from the previous month’s 52.9. However, the Composite PMI softened from 51.3 to 51.2 in May, despite the upbeat services figure.

Markit economist Annabel Fiddes commented: ‘Overall growth momentum appears relatively weak, weighed down by an ongoing deterioration in manufacturing operating conditions, therefore further stimulus measures may be required to keep up with an annual GDP growth target of 7.0%.’

The Chinese Yuan to Pound Sterling (CNY/GBP) exchange rate is trending in the region of 0.1056.

Euro (EUR) Exchange Rate Mixed after Eurozone Unemployment and Retail Sales Data

Meanwhile, the Euro (EUR) exchange rate is likely to be in for some major fluctuations this week as Greece approaches its Friday International Monetary Fund (IMF) repayment. The Greek government has stated that if no deal is made by Friday that the nation will default on its IMF payment.

By way of data, Eurozone Retail Sales climbed from 1.6% to 2.2% in April on the year, while the Eurozone’s Unemployment Rate dropped from 11.3% to 11.1%.

The Euro to Pound Sterling (EUR/GBP) exchange rate is trending in the region of 0.7290 with market movement of +0.25%.

The Pound Sterling to Chinese Yuan (GBP/CNY) exchange rate is trending at 9.4606. The Pound Sterling to Japanese Yen (GBP/JPY) exchange rate is trending in the region of 189.8700. The Pound Sterling to Euro (GBP/EUR) exchange rate is trending in the vicinity of 1.3721.