• GBP/USD meets with a fresh supply on Monday and drifts lower through the early European session.
  • The disappointing UK PMIs reaffirm bets for a less aggressive BoE and weigh on the British Pound.
  • The downside seems limited as the focus remains glued to the crucial BoJ policy decision on Friday.

The GBP/JPY cross kicks off the new week on a weaker note and reverses a part of Friday’s positive move to a nearly two-week high, around mid-182.00s. The steady intraday descent remains uninterrupted following the disappointing release of the UK PMI prints and drags spot prices to the 181.20-181.15 area, or a fresh daily low during the early part of the European session.

The British Pound (GBP) weakens across the board after the preliminary report by the S&P Global/CIPS showed that business activity in the UK manufacturing sector contracted for the eleventh straight month in July. Moreover, the gauge for the UK services sector pointed to a further slowdown in growth during the reported month. This comes on the back of last week’s softer UK consumer inflation figures and validates market expectations for a less aggressive policy tightening by the Bank of England (BoE), which, in turn, is seen dragging the GBP/JPY cross lower.

Apart from this, concerns about slowing global economic growth, along with the worsening US-China relations and geopolitical risks, benefit the safe-haven Japanese Yen (JPY) and contribute to the intraday slide. The JPY, however, lacks bullish conviction in the wake of growing acceptance that the Bank of Japan (BoJ) will stick to its dovish stance at the end of a two-day meeting on Friday. In fact, a government spokesperson said on Monday that Japan’s inflation will likely slow to around 1.5% next year when stripping away the effect of one-off factors.

In contrast, Japan’s top currency diplomat Masato Kanda said that the recent inflation and wage rises were overshooting expectations and the data available so far supports prospects for an upgrade in the BoJ’s inflation forecasts. Hence, the market focus will remain glued to the latest BoJ monetary policy update, due on Friday. The outlook will play a key role in influencing the JPY and provide a fresh directional impetus to the GBP/JPY cross. This, in turn, warrants some caution for aggressive bearish traders and positioning for deeper losses.

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