British Pound stays depressed below 213.00 vs JPY amid UK political chaos, ahead of UK CPI

GBP/JPY struggles to lure buyers as UK political uncertainty continues to undermine the GBP.
Intervention fears prompt some JPY short-covering and also contribute to the pair’s downtick.
The downside remains cushioned as traders await the release of UK consumer inflation figures.

Haresh Menghani FXStreet

The GBP/JPY cross remains depressed for the second consecutive day on Wednesday, though it lacks follow-through selling and holds above the previous day's swing low. Spot prices currently trade below the 213.00 mark, down just over 0.10% for the day, as traders opt to wait for the latest UK consumer inflation figures before placing fresh directional bets.

The crucial UK Consumer Price Index (CPI) report for April will be analysed from a monetary policy perspective, which would provide further insight about the Bank of England’s (BoE) next steps. Hence, any relevant deviation from the market consensus is likely to boost near-term volatility for the British Pound (GBP) and provide some meaningful impetus to the GBP/JPY cross.

Heading into the key data risk, the UK political uncertainty, amid serious leadership challenges to Prime Minister Keir Starmer, and a bullish US Dollar (USD) weigh on the GBP. The Japanese Yen (JPY), on the other hand, draws support from speculations that authorities will step in again to support the domestic currency, exerting some downward pressure on the GBP/JPY cross.

The JPY, however, lacks bullish conviction amid economic concerns stemming from the Middle East conflict. Investors seem worried that Japan's economy will come under strain in the foreseeable future amid the continued disruption of energy supplies through the Strait of Hormuz. This, in turn, holds back traders from placing aggressive bearish bets around the GBP/JPY cross.

Hence, it will be prudent to wait for strong follow-through selling before positioning for any further depreciating move for the currency pair. Bulls, on the other hand, might struggle to make it through the 214.00 pivotal hurdle. A sustained strength beyond the latter, however, should allow the GBP/JPY cross to build on last week's solid recovery from the 211.00 neighborhood.

Economic Indicator

Core Consumer Price Index (YoY)

The United Kingdom (UK) Core Consumer Price Index (CPI), released by the Office for National Statistics on a monthly basis, is a measure of consumer price inflation – the rate at which the prices of goods and services bought by households rise or fall – produced to international standards. The YoY reading compares prices in the reference month to a year earlier. Core CPI excludes the volatile components of food, energy, alcohol and tobacco. The Core CPI is a key indicator to measure inflation and changes in purchasing trends. Generally, a high reading is seen as bullish for the Pound Sterling (GBP), while a low reading is seen as bearish.

Why it matters to traders?

The Bank of England is tasked with keeping inflation, as measured by the headline Consumer Price Index (CPI) at around 2%, giving the monthly release its importance. An increase in inflation implies a quicker and sooner increase of interest rates or the reduction of bond-buying by the BOE, which means squeezing the supply of pounds. Conversely, a drop in the pace of price rises indicates looser monetary policy. A higher-than-expected result tends to be GBP bullish.

Author

Haresh Menghani

FXStreet

Haresh Menghani is a detail-oriented professional with 10+ years of extensive experience in analysing the global financial markets.

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