- GBP/JPY has shifted its auction profile above 160.00 amid rising hawkish BoE bets.
- According to a Reuters poll, the BoE might hike its interest rates by 50 bps to 4% in February.
- Higher-than-expected UK PPI data could accelerate inflation projections further.
The GBP/JPY pair sensed a decent buying interest after dropping near the round-level resistance of 160.00. The cross is attempting to extend its recovery meaningfully above 160.50 amid rising expectations for the continuation of bulky interest rate hikes by the Bank of England (BoE) ahead.
Following the sideways GBP/USD footprints, the GBP/JPY pair also demonstrates rangebound oscillation. The Pound Sterling will likely remain in the bullish territory as the BoE seems bound to tighten interest rate policy further to contain stubborn inflation.
The latest poll by Reuters for BoE interest rate projections claims that 29 of 42 economists are favoring a 50 basis point (bps) interest rate hike to 4.00 on February 02 by BoE Governor Andrew Bailey. However, residual economists have favored a 25 bps interest rate hike. In the agenda of restricting inflation to 2%, the BoE has to continue hiking interest rates further as an increment in food prices has offset the impact of softening energy prices. Also, the labour shortage has been a significant concern for the United Kingdom's economy.
For further guidance, the release of the UK Producer Price Index (PPI) will remain in the spotlight. The core PPI output is seen higher at 13.9% vs. the former release of 13.3%. An occurrence of the same might trigger inflation projections further and create more troubles for the BoE policymakers. Also, it might strengthen the odds of a bumper interest rate hike by the BoE.
Meanwhile, economists at CIBC Capital Markets are favoring strength in the Japanese Yen in the second half of CY2023 because the Bank of Japan (BoJ) might exit from negative rates, and the most significant foreign holding of US Treasuries by Japan would compress the interest rate spread.
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