GBP/JPY jumps back above 193.00 on hotter UK CPI print, lacks follow-through amid stronger JPY

GBP/JPY bounces off daily low as hotter UK inflation figures temper BoE rate cut bets.
BoJ rate hike bets underpin the JPY amid reviving safe-haven demand and cap the cross.
A break below the 200-day SMA is needed to support prospects for any further losses.

Haresh Menghani FXStreet

The GBP/JPY cross trims a part of its modest intraday losses following the release of hotter-than-expected UK consumer inflation figures, though it lacks follow-through buying. Spot prices currently trade around the 193.20 region, down over 0.15% for the day amid a broadly stronger Japanese Yen (JPY).

Data released by the UK Office for National Statistics (ONS) earlier this Wednesday showed that the headline annual Consumer Price Index (CPI) jumped from the 2.6% seen in the prior month to 3.5% in April, the highest level in over a year. Adding to this, the annual core CPI, which excludes volatile energy and food prices, rose 3.8% compared to 3.4% in March. The readings were well above consensus estimates and the Bank of England's (BoE) 2.0% medium-term target, forcing investors to scale back their expectations for more rate cuts in 2025 and boosting the British Pound (GBP).

Traders, however, are still pricing in the possibility that the UK central bank will lower borrowing costs at least once by the year-end. This marks a sharp divergence in comparison to the growing acceptance that the Bank of Japan (BoJ) will hike interest rates again amid fears of broader and more entrenched price increases in Japan. Furthermore, reviving safe-haven demand, bolstered by renewed US-China trade tensions and persistent geopolitical risks, benefits the JPY. This, in turn, keeps a lid on the GBP/JPY pair's intraday recovery of around 40 pips from the 192.85-192.80 region.

Nevertheless, the mixed fundamental backdrop makes it prudent to wait for strong follow-through selling below the 200-day Simple Moving Average (SMA) before positioning for an extension of the recent pullback from over a four-month high touched last week.

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

Haresh Menghani

FXStreet

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

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