GBP/JPY advances to near 192.00 despite a dovish sentiment surrounding the BoE

GBP/JPY could face challenges as the BoE is widely expected to lower its interest rate in February.
The Japanese Yen could gain support due to the increased likelihood of the BoJ hiking interest rates later this week.
Tomoko Yoshino, the head of Japan's largest trade union, Rengo, reaffirms the ongoing momentum for wage increases in Japan.

Akhtar Faruqui FXStreet

GBP/JPY continues to remain in positive territory for the fourth successive day, trading around 192.00 during the European hours on Wednesday. However, this upside of the GBP/JPY cross could be limited as the Pound Sterling (GBP) remains under pressure after the release of labor market data from the United Kingdom (UK) on Tuesday.

The ILO Unemployment Rate unexpectedly rose to 4.4%, along with the sharpest drop in payroll numbers since November 2020, signaling a potential weakening in the labor market. Following the labor market report, analysts at Nomura noted that this data provides the BoE with a "green light to cut in February." Markets are also betting on one or two more reductions after February.

Last week's data pointed to an unforeseen slowdown in inflation and weaker-than-expected economic growth. As a result, the Bank of England (BoE) is widely anticipated to lower the key interest rate by 25 basis points to 4.5% during its policy meeting on February 6.

Additionally, the GBP/JPY cross may depreciate as the Japanese Yen (JPY) could draw support from rising expectations that the Bank of Japan (BoJ) will hike interest rates later this week. Hawkish comments from Bank of Japan (BoJ) officials, combined with optimism that rising wages will help Japan sustainably achieve its 2% inflation target, bolster expectations for a potential rate hike on Friday.

Tomoko Yoshino, head of Japan's largest trade union, Rengo, echoed the BoJ’s sentiment, affirming the momentum for wage increases. The BoJ has consistently emphasized that sustained, broad-based wage growth is a key prerequisite for raising short-term interest rates.

Interest rates FAQs

What are interest rates?

Interest rates are charged by financial institutions on loans to borrowers and are paid as interest to savers and depositors. They are influenced by base lending rates, which are set by central banks in response to changes in the economy. Central banks normally have a mandate to ensure price stability, which in most cases means targeting a core inflation rate of around 2%. If inflation falls below target the central bank may cut base lending rates, with a view to stimulating lending and boosting the economy. If inflation rises substantially above 2% it normally results in the central bank raising base lending rates in an attempt to lower inflation.

How do interest rates impact currencies?

Higher interest rates generally help strengthen a country’s currency as they make it a more attractive place for global investors to park their money.

How do interest rates influence the price of Gold?

Higher interest rates overall weigh on the price of Gold because they increase the opportunity cost of holding Gold instead of investing in an interest-bearing asset or placing cash in the bank. If interest rates are high that usually pushes up the price of the US Dollar (USD), and since Gold is priced in Dollars, this has the effect of lowering the price of Gold.

What is the Fed Funds rate?

The Fed funds rate is the overnight rate at which US banks lend to each other. It is the oft-quoted headline rate set by the Federal Reserve at its FOMC meetings. It is set as a range, for example 4.75%-5.00%, though the upper limit (in that case 5.00%) is the quoted figure. Market expectations for future Fed funds rate are tracked by the CME FedWatch tool, which shapes how many financial markets behave in anticipation of future Federal Reserve monetary policy decisions.

Author

Akhtar Faruqui

FXStreet

Akhtar Faruqui is a Forex Analyst based in New Delhi, India. With a keen eye for market trends and a passion for dissecting complex financial dynamics, he is dedicated to delivering accurate and insightful Forex news and analysis.

GBP/USD hovers around daily lows near 1.3450

GBP/USD trades with decent losses on Thursday, revisiting the 1.3450 zone. Cable’s resumption of the selling interest comes after two daily advances in a row and follows the improved sentiment around the Greenback amid fresh concerns in the Middle East.

EUR/USD bounces off lows, back to 1.1520

EUR/USD now manages to gather some traction following an earlier pullback toward the vicinity of 1.1500 on Thursday. The pair’s decent retracement comes in response to the firmer tone in the US Dollar in a context of reignited concerns over the Strait of Hormuz.

How Wall Street rigs the game [Video]

In this week’s Live from the Vault, Andrew Maguire is joined by Peter Antico and Sean Stone to discuss the Paradigm of Money - an in-depth expose of financial market corruption, from naked shorting to the two-tier system that protects Wall Street.

XRP Price Forecast: Sell-off persists, bears aim for $1.00 as Ripple eyes on-chain multi-signature upgrade

Ripple (XRP) remains pressured, trading below $1.05 at the time of writing on Thursday. The token has declined for the fourth consecutive day this week, reflecting lethargic sentiment in the broader cryptocurrency market despite the possibility of easing geopolitical tensions in the Middle East.

The Fed is doing the exact opposite of what it should be doing

About the Yen: The WSJ has a front-page story about how the Fed is doing the exact opposite of what it should be doing—lending dollars to Japan to buy yen. “Put simply: America is printing dollars so Japan can buy yen.

9-3: Is the Federal Reserve’s vote tally Warsh's new forward guidance?

The rate did not move. Neither did the statement, and that’s the more interesting fact. Set the July 29 Federal Open Market Committee (FOMC) statement beside the one issued on June 17, and the two documents are identical apart from a single verb and a paragraph at the bottom naming three dissenters.