GBP/JPY gives up some intraday gains after BoE holds interest rates steady at 4%
- GBP/JPY pares some of its early gains after the BoE’s monetary policy announcement.
- The BoE held interest rates steady at 4% with a 7-2 majority, as expected.
- Investors await Japan’s National CPI data for August and the BoJ’s monetary policy outcome.
The GBP/JPY pair gives back some of its early gains during the late European trading session on Thursday. Still, the pair trades 0.2% higher to near 200.70. The asset faces selling pressure after the monetary policy announcement by the Bank of England (BoE), in which it held interest rates steady at 4%, as expected.
The BoE maintains the status quo with a 7-2 majority as household inflation expectations remain elevated. The rate-setting committee has stated that it will remain focused on squeezing out any “existing or emerging persistent inflationary pressures, to bring inflation sustainably to its 2% target in the medium term”.
Two BoE Monetary Policy Committee (MPC) members who voted for a further 25 basis points (bps) reduction in interest rates were Swati Dhingra and Alan Taylor. The BoE reduced its key borrowing rates by 25 bps in August.
The BoE sees inflation peaking 4% in September and has retained their “gradual and careful” monetary expansion guidance.
Meanwhile, the Japanese Yen (JPY) underperforms its peers, except the New Zealand Dollar (NZD), ahead of the release of the National Consumer Price Index (CPI) data for August and the Bank of Japan’s (BoJ) monetary policy announcement on Friday. National CPI ex. Fresh Food is estimated to have grown at an annual pace of 2.7%, slower than the prior reading of 3.1%.
The BoJ is expected to keep interest rates on hold at 0.5% and might keep the door open for an interest rate hike in the remainder of the year.
Pound Sterling FAQs
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).
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.
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.
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
Sagar Dua
FXStreet
Sagar Dua is associated with the financial markets from his college days. Along with pursuing post-graduation in Commerce in 2014, he started his markets training with chart analysis.
