GBP/JPY drops from 188.00 on soft UK Inflation report

The GBP/JPY pair drops after failing to sustain above the crucial resistance of 188.00. The cross fell as inflationary pressures in the United Kingdom economy remained softer than expectations.

The UK Office for National Statistics (ONS) has reported that the monthly headline Consumer Price Index (CPI) remained stagnant in October due to falling gas prices. The annual headline inflation rose by 4.6%, slower than expectations of 4.8% and the prior reading of 6.7%.

After a sharp decline in headline inflation, UK Prime Minister (PM) Rishi Sunak said that “while it is welcome news that prices are no longer rising as quickly, we know many people are continuing to struggle.”

A significant fall in headline inflation to 4.6% indicates that Rishi Sunak has fulfilled his promise of halving inflation to 5.4% by the year-end. The core inflation which doesn’t take volatile oil and food prices into consideration, decelerated to 5.7% against expectations of 5.8% and the former reading of 6.1%.

Producers cut prices of inputs and end-products at factory gates due to slowing demand from the domestic and overseas markets.

A soft UK inflation report has squeezed expectations of further policy-tightening by the Bank of England (BoE). Easing labor market conditions and inflation would allow BoE policymakers to keep interest rates unchanged at 5.25%.

Meanwhile, the broader appeal for the Japanese Yen remains downbeat as investors expect that the pace of transition from an ultra-easy monetary stance to policy normalization by the Bank of Japan (BoJ) would be extremely slow. A delay in stealth intervention plans by the Japanese authority has also impacted demand for the Japanese Yen.