|

British Pound sticks to post-UK inflation losses as faster BoJ rate hike bets lift JPY

  • GBP/JPY drifts lower as mixed UK inflation figures temper BoE rate hike bets and weigh on the GBP.
  • Reports of a faster BoJ policy tightening and intervention risks lift the JPY, further exerting pressure.
  • The wide UK-Japan rate differential warrants caution before positioning for any meaningful decline.

The GBP/JPY cross attracts some intraday sellers on Wednesday and slides below the 218.00 mark during the first half of the European session. Spot prices remain, however, confined within the previous day's broader range amid the supportive fundamental backdrop.

The British Pound (GBP) weakens slightly following the release of mixed UK inflation figures. The Japanese Yen (JPY), on the other hand, gets a minor lift in the wake of a Bloomberg report that Bank of Japan (BoJ) officials are open to raising interest rates at a faster pace. Apart from this, speculations that Japanese authorities will step in to prop up the domestic currency prompt JPY short-covering and exert some intraday downward pressure on the GBP/JPY cross.

The UK Office for National Statistics (ONS) reported that the headline Consumer Price Index (CPI) rose 2.6% over the year in June, missing expectations of a slight deceleration to 2.7% from 2.8% in the previous month. Additional details revealed that the core CPI (excluding volatile food and energy items) climbed 2.6% YoY, compared to the forecast of 2.5%. Nevertheless, the data tempered hopes of a Bank of England (BoE) rate hike and weighed on the GBP.

Analysts at ING note that, “despite the slightly higher-than-expected UK June core inflation data this morning,” their UK economist James Smith “thinks the underlying trend is heading in the right direction.” Smith points to easing pressures from food and petrol, alongside softer core services inflation, as evidence that domestically generated price pressures are becoming more benign. ING adds that Sterling has slipped in response to the data.”

The immediate market reaction, however, remains limited as trades seem to have fully priced in a 0.25% BoE rate increase by September. Moreover, a second hike is expected before the end of 2026, which would bring the official rate to 4.25%. In contrast, the BoJ's short-term policy rate is 1.0%. This leaves a wide interest rate differential, which continues to fuel the so-called JPY carry trade and acts as a tailwind for the GBP/JPY cross, warranting caution for bears.

Meanwhile, investors remain worried about economic risks stemming from  the US-Iran standoff over the Strait of Hormuz as Japan relies on the critical waterway for over 90% of its oil imports. This, in turn, suggests that the path of least resistance for the JPY remains to the downside, making it prudent to wait for strong follow-through selling before positioning for an extension of the GBP/JPY pair's pullback from its highest level since January 2008, touched last week.

Pound Sterling Price This week

The table below shows the percentage change of British Pound (GBP) against listed major currencies this week. British Pound was the strongest against the Canadian Dollar.

USDEURGBPJPYCADAUDNZDCHF
USD0.15%0.59%0.37%0.56%-0.46%0.27%0.40%
EUR-0.15%0.45%0.19%0.40%-0.61%0.13%0.24%
GBP-0.59%-0.45%-0.26%-0.04%-1.04%-0.33%-0.16%
JPY-0.37%-0.19%0.26%0.25%-0.80%-0.17%0.11%
CAD-0.56%-0.40%0.04%-0.25%-0.97%-0.42%-0.12%
AUD0.46%0.61%1.04%0.80%0.97%0.73%0.89%
NZD-0.27%-0.13%0.33%0.17%0.42%-0.73%0.17%
CHF-0.40%-0.24%0.16%-0.11%0.12%-0.89%-0.17%

The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the British Pound from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent GBP (base)/USD (quote).

Author

Haresh Menghani

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

More from Haresh Menghani
Share:

Editor's Picks

USD/JPY eyes August swing low, near 155.20 ahead of US NFP

USD/JPY retests the August monthly swing low during the Asian session on Friday as a more hawkish repricing of BoJ rate-hike bets and a suspected intervention continue to underpin the Japanese Yen. Meanwhile, the US Dollar is seen consolidating the previous day's heavy losses amid soft US bond yields, further weighing on the currency pair as traders keenly await the US NFP report.

AUD/USD consolidates above 0.7200; US NFP awaited

AUD/USD holds steady above 0.7200, near its highest level since mid-May, as bulls await the US NFP report for more cues on the Fed's policy path before placing fresh bets. Meanwhile, the recent decline in US bond yields keeps the US Dollar depressed near its lowest level in over a week and acts as a tailwind for the Aussie amid the RBA's hawkish tilt.

Gold tumbles as blockbuster US NFP lift US Dollar, Treasury yields

Gold (XAU/USD) falls sharply on Friday, snapping a two-day recovery after the US Nonfarm Payrolls (NFP) report surprised strongly to the upside. The metal briefly climbed above $4,500 on Thursday, gaining nearly 2%, but has since erased a large part of that advance.

Crypto’s $638 million buyback boom may not be as bullish as it looks
Decentralized Finance (DeFi) protocols reportedly spent $638 million to buy back their native tokens in August, up 17% from a year earlier. On the surface, the buyback trend suggests the cryptocurrency industry is maturing fast, adopting one of Wall Street’s oldest tools to bolster valuations and distribute revenue. The headline becomes less impressive once the number is opened up.
Why hawkish Bank of Japan expectations aren't enough to sustain the Japanese Yen rally

The Japanese Yen (JPY) experienced a sudden burst higher after falling back below the 160.00 psychological mark against the US Dollar (USD) earlier this week amid a more hawkish repricing of Bank of Japan (BoJ) rate hike expectations.

Diesel’s record $100 warning: The oil shock hiding in plain sight

The Oil market may look calmer than it did a few months ago, but diesel is sending a very different message. The US diesel crack spread, the premium of ultra-low sulphur diesel futures over WTI, recently surged above $100 per barrel for the first time, reaching an intraday record of just over $102.00.