GBP/JPY climbs to 189.00 amid modest JPY weakness; upside potential seems limited

GBP/JPY rebounds after retesting a multi-month low at the start of a new week.
The strong recovery is sponsored by the emergence of selling around the JPY.
The divergent BoJ-BoE expectations might cap any further gains for the cross.

Haresh Menghani FXStreet

The GBP/JPY cross stages a goodish intraday recovery from the 187.00 neighborhood, or its lowest level since September 2024 retested earlier this Monday and builds on its ascent through the first half of the European session. Spot prices advance to the 189.00 mark in the last hour and for now, seem to have snapped a three-day losing streak.

US President Donald Trump's fresh tariff threats revive fears that Japan would also be an eventual target of new US levies, which, in turn, undermines the Japanese Yen (JPY) and prompts some short-covering around the GBP/JPY cross. However, hawkish Bank of Japan (BoJ) expectations and concerns about a global trade war hold back bearish traders from placing aggressive bets around the safe-haven JPY.

Kazuhiro Masaki, Director General of the BoJ's monetary affairs department, said last Thursday that the central bank will continue to raise interest rates if underlying inflation accelerates toward its 2% target as projected. This comes on top of data showing that Japan’s inflation-adjusted real wages rose for the second straight month and backs the case for further tightening by the Japanese central bank.

This marks a big divergent in comparison to the Bank of England's (BoE) gloomy outlook, which, in turn, should contribute to capping the GBP/JPY cross. The UK central bank lowered its benchmark interest rate by 25 basis points last week and downgraded the growth forecast for 2025. Moreover, BoE Governor Andrew Bailey said that the central bank expects to make further rate cuts this year.

In the absence of any relevant economic data, the aforementioned fundamental backdrop makes it prudent to wait for strong follow-through buying before confirming that the GBP/JPY cross has bottomed out in the near term. Traders now look forward to BoE Governor Andrew Bailey's speech on Tuesday, which will play a key role in influencing the British Pound (GBP) and provide a fresh impetus.

Pound Sterling FAQs

What is the Pound Sterling?

The Pound Sterling (GBP) is the oldest currency in the world (886 AD) and the official currency of the United Kingdom. It is the fourth most traded unit for foreign exchange (FX) in the world, accounting for 12% of all transactions, averaging $630 billion a day, according to 2022 data. Its key trading pairs are GBP/USD, also known as ‘Cable’, which accounts for 11% of FX, GBP/JPY, or the ‘Dragon’ as it is known by traders (3%), and EUR/GBP (2%). The Pound Sterling is issued by the Bank of England (BoE).

How do the decisions of the Bank of England impact on the Pound Sterling?

The single most important factor influencing the value of the Pound Sterling is monetary policy decided by the Bank of England. The BoE bases its decisions on whether it has achieved its primary goal of “price stability” – a steady inflation rate of around 2%. Its primary tool for achieving this is the adjustment of interest rates. When inflation is too high, the BoE will try to rein it in by raising interest rates, making it more expensive for people and businesses to access credit. This is generally positive for GBP, as higher interest rates make the UK a more attractive place for global investors to park their money. When inflation falls too low it is a sign economic growth is slowing. In this scenario, the BoE will consider lowering interest rates to cheapen credit so businesses will borrow more to invest in growth-generating projects.

How does economic data influence the value of the Pound?

Data releases gauge the health of the economy and can impact the value of the Pound Sterling. Indicators such as GDP, Manufacturing and Services PMIs, and employment can all influence the direction of the GBP. A strong economy is good for Sterling. Not only does it attract more foreign investment but it may encourage the BoE to put up interest rates, which will directly strengthen GBP. Otherwise, if economic data is weak, the Pound Sterling is likely to fall.

How does the Trade Balance impact the Pound?

Another significant data release for the Pound Sterling is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought-after exports, its currency will benefit purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.

Author

Haresh Menghani

FXStreet

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

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.