British Pound trades firmly against Japanese Yen ahead of UK flash PMI data

• GBP/JPY clings to Thursday’s gains around 217.00 ahead of the UK preliminary S&P Global PMI data for August.
• The UK Composite PMI is expected to come in lower at 51.6 from 52.2 in July.
• Hotter-than-expected Japan’s National CPI report supports hawkish BoJ expectations.

The British Pound (GBP) holds onto Thursday’s gains at around 217.00 against the Japanese Yen (JPY) during the European trading session on Friday. The GBP/JPY pair trades firmly ahead of the United Kingdom (UK) preliminary S&P Global Purchasing Managers’ Index (PMI) data for August, which will be published at 08:30 GMT.

The S&P Global PMI report is expected to show that overall business activity expanded again, but at a moderate pace, due to a slowdown in both manufacturing and service sector activity. The Composite PMI is seen arriving at 51.6, lower than 52.2 in July.

Earlier in the day, the UK Office for National Statistics (ONS) reported weak Retail Sales data for July. Month-on-Month (MoM) Retail Sales, a key measure of consumer spending, declined by 0.5%, as expected, against a 0.7% growth in June. On an annualized basis, the consumer spending measure grew at a slower pace of 1.6% vs. 2.2% estimates and the previous reading of 4.2%.

Weak Retail Sales data suggests higher inflationary pressures are limiting households’ spending power, which seems to amplify troubles for Bank of England (BoE) officials.

This week, the UK Consumer Price Index (CPI) data for July showed that headline inflation accelerated to 2.9% YoY from 2.6% YoY in June.

On the Tokyo front, the Japanese Yen (JPY) struggles to gain traction even as higher-than-expected Japan National CPI data is expected to reinforce Bank of Japan (BoJ) interest rate hike expectations.

Commerzbank’s Volkmar Baur points to a similar picture across the broader inflation complex, observing that “the overall inflation rate rose to 1.9%, and the picture is similar for core rates - excluding fresh food (1.8%) and, additionally, excluding energy (1.9%) - with the rate of price increases appearing to stabilize at the desired 2%.”

“Together, the latest readings underscore that while inflation is being restrained by government support measures, it is now hovering close enough to the BoJ’s objective to keep the timing and extent of any further rate moves firmly in focus,” Baur added.