GBP/JPY fails to hold above 156.00 following dovish BoE rate hike as BoJ meeting looms
|- Despite the broadly risk-on market mood on Thursday, the dovish BoE rate hike prevented GBP/JPY from holding above 156.00.
- Amid rumblings of a Russo-Ukraine peace deal that could hit FX haven like the yen, this may not be enough to prevent GBP/JPY’s rally.
- The BoJ will be deciding on monetary policy during Friday’s Asia Pacific session.
Markets were in a risk-on mood on Thursday with global equities higher across the board, but this wasn’t enough for GBP/JPY. Indeed, the pair was last trading ever so slightly in the red just to the south of the 156.00 level, with sterling struggling to take advantage of risk-on flows in wake of Thursday’s more dovish thank expected BoE rate decision.
The central bank raised interest rates by 25bps as expected, but one of the nine rate-setters unexpectedly voted not to raise interest rates and the bank’s guidance on the prospect for future rate hikes was less hawkish than at its last meeting. Analysts interpreted the dovish hike as a negative for GBP, which, the reasoning goes, can no longer count on the tailwind of being backed by one of the more hawkish G10 central banks. Indeed, the Fed, though a few hikes behind the BoE in this hiking cycle, is looking much more hawkish right now.
Whether that will ultimately be enough to prevent GBP/JPY from advancing is another thing entirely. The BoJ, who decides on monetary policy in the coming hours, is nowhere near moving towards monetary tightening and G10/JPY currency pairs remain highly sensitive to G10/Japan rate differentials. That means if UK rates can maintain recent upside momentum, even if driven by rising inflation expectations, GBP/JPY stands a good chance at continuing to rally.
Though the reporting on the topic has been mixed and conflicting, there seems to be some momentum towards a Russo-Ukraine peace deal. If reached, that would hit JPY and likely give GBP/JPY, which has already rallied more than 3.0% versus earlier weekly lows, further tailwinds. Whether that would be enough to help the pair muster a break above annual highs in the 158.00 area is another thing entirely.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.