- GBP/JPY is displaying back-and-forth moves around 168.50 as the focus has shifted to BOE policy.
- A rate hike of 75 bps by the BOE could be followed by dovish guidance to scrap recession fears.
- The risk profile has been harmed as Japan-North Korea tensions have renewed.
The GBP/JPY pair is oscillating around the immediate hurdle of 168.50 in the early Tokyo session as investors are awaiting the announcement of the interest rate decision by the Bank of England (BOE). The cross has been declining continuously since the Bank of Japan (BOJ) announced an unchanged interest rate policy to support its economic prospects.
Meanwhile, the risk aversion theme has been underpinned as the Federal Reserve (Fed) has hiked its interest rate for the fourth time. Also, Japan-North Korea tensions have renewed as North Korea has fired an unidentified ballistic missile over Japan, as broadcast by NHK. Also, Japan administration has warned residents to take shelter from missile threats. This could bring volatility for the Japanese yen.
Going forward, the interest rate decision by BOE Governor Andrew Bailey will be of utmost importance. Economists at Goldman Sachs have voted in favor of the biggest rate hike of 75 basis points (bps) by the UK central bank since 1989. What is surprising now is that the bigger rate hike will be followed by dovish guidance on interest rates as recession fears have accelerated in the UK economy.
Goldman Sachs’ Chief European Economist Sven Jari Stehn wrote in his latest research note that the UK economic recession is likely to be deeper than previously forecast. “The country is likely to have a four-quarter cumulative fall in the gross domestic product (GDP) of 1.6%.” The investment banking firm has also lowered UK’s growth projections to 1.4% from -1.0% for 2023 on an annual basis.
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