GBP/JPY holds losses near 191.50 following UK inflation data

GBP/JPY remains subdued following the release of UK inflation data on Wednesday.
UK Consumer Price Index rose 3.0% YoY in January, remaining well above the BoE’s 2% target.
Japan’s trade deficit increased to JPY 2,758.78 billion in January as annual imports surged to a 26-month high.

Akhtar Faruqui FXStreet

GBP/JPY remains under pressure near 191.50 during early European trading on Wednesday, following the release of UK inflation data. The UK’s Office for National Statistics (ONS) reported that the Consumer Price Index (CPI) rose 3.0% year-over-year (YoY) in January, up from December’s 2.5% increase and exceeding market expectations of 2.8%. The reading remains well above the Bank of England’s (BoE) 2% target.

The monthly CPI inflation dipped to -0.1% in January from +0.3% in December, outperforming market forecasts of -0.3%. Meanwhile, Core CPI, which excludes volatile food and energy prices, climbed 3.7% YoY, aligning with market expectations and accelerating from December’s 3.2%. Additionally, services inflation surged to 5.0% YoY in January, up from 4.4% in the previous month.

The GBP/JPY pair weakens as the Japanese Yen (JPY) gains traction amid growing expectations that the Bank of Japan (BoJ) will continue raising interest rates to combat persistent inflation. However, the JPY’s upside may be capped due to weaker-than-expected economic data.

Japan’s core Machinery Orders—excluding ships and electric power—fell 1.2% month-on-month in December 2024, marking the steepest decline in four months and reversing November’s 3.4% growth. The reading also defied market projections for a modest 0.1% gain.

Japan’s trade deficit widened sharply to JPY 2,758.78 billion in January from JPY 1,766.54 billion a year earlier, exceeding market estimates of JPY 2,100 billion. Imports surged 16.7% YoY to a 26-month high, significantly outpacing December’s 1.7% growth and surpassing forecasts of 9.7%. Exports, however, expanded at a slower 7.2% YoY, marking the fourth consecutive month of growth but missing expectations of 7.9%.

Economic Indicator

Consumer Price Index (YoY)

The United Kingdom (UK) Consumer Price Index (CPI), released by the Office for National Statistics on a monthly basis, is a measure of consumer price inflation – the rate at which the prices of goods and services bought by households rise or fall – produced to international standards. It is the inflation measure used in the government’s target. The YoY reading compares prices in the reference month to a year earlier. Generally, a high reading is seen as bullish for the Pound Sterling (GBP), while a low reading is seen as bearish.

Why it matters to traders?

The Bank of England is tasked with keeping inflation, as measured by the headline Consumer Price Index (CPI) at around 2%, giving the monthly release its importance. An increase in inflation implies a quicker and sooner increase of interest rates or the reduction of bond-buying by the BOE, which means squeezing the supply of pounds. Conversely, a drop in the pace of price rises indicates looser monetary policy. A higher-than-expected result tends to be GBP bullish.

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.

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