GBP/JPY trades around 187.00 following a rebound from six-month lows

GBP/JPY holds gains following unexpected dovish comments from BoJ Deputy Governor Shinichi Uchida.
BoJ’s Uchida emphasized to maintain its current level of monetary easing for the time being.
The Japanese Yen may appreciate due to increased risk aversion amid heightened Middle East tensions.

Akhtar Faruqui FXStreet

GBP/JPY halts its losing streak that began on July 30, trading around 187.00 during the European session on Wednesday. This rebound could be linked to dovish comments from Bank of Japan (BoJ) Deputy Governor Shinichi Uchida, who stated, “We won’t raise rates when markets are unstable,” according to Reuters.

Deputy Governor Uchida also highlighted that the BoJ's interest rate strategy may adjust if market volatility affects economic forecasts, risk assessments, or projections. In light of recent market fluctuations, he stressed the importance of closely monitoring the economic and price impacts of their policies, stating, “We must maintain the current degree of monetary easing for the time being.”

The escalating geopolitical tensions in the Middle East could impact safe-haven demand and support the Japanese Yen (JPY), undermining the GBP/JPY cross. Hamas appointed Yahya Sinwar as its new leader in Gaza following the assassination of former chief Ismail Haniyeh on Tuesday, according to Reuters.

There are growing concerns about potential escalation, with Iran and its allies—Hamas and Hezbollah—pledging retaliation against Israel and the United States for the killing of the Hamas leader.

In the United Kingdom, the Halifax House Price Index increased by 2.3% year-on-year in July, up from a revised 1.9% gain in June, marking the sharpest annual growth since January. House prices rose by 0.8% MoM after remaining unchanged in June, surpassing market forecasts of a 0.3% increase.

Housing prices may continue to show a modest upward trend for the rest of 2024, supported by lower mortgage rates and the potential for further base rate reductions by the Bank of England (BoE), which could encourage homebuyers.

Meanwhile, the Pound Sterling (GBP) could face challenges following the BoE's widely anticipated 25-basis point rate cut at its August meeting. Additionally, market expectations now include the possibility of two more quarter-point rate cuts by the BoE by December.

Interest rates FAQs

What are interest rates?

Interest rates are charged by financial institutions on loans to borrowers and are paid as interest to savers and depositors. They are influenced by base lending rates, which are set by central banks in response to changes in the economy. Central banks normally have a mandate to ensure price stability, which in most cases means targeting a core inflation rate of around 2%. If inflation falls below target the central bank may cut base lending rates, with a view to stimulating lending and boosting the economy. If inflation rises substantially above 2% it normally results in the central bank raising base lending rates in an attempt to lower inflation.

How do interest rates impact currencies?

Higher interest rates generally help strengthen a country’s currency as they make it a more attractive place for global investors to park their money.

How do interest rates influence the price of Gold?

Higher interest rates overall weigh on the price of Gold because they increase the opportunity cost of holding Gold instead of investing in an interest-bearing asset or placing cash in the bank. If interest rates are high that usually pushes up the price of the US Dollar (USD), and since Gold is priced in Dollars, this has the effect of lowering the price of Gold.

What is the Fed Funds rate?

The Fed funds rate is the overnight rate at which US banks lend to each other. It is the oft-quoted headline rate set by the Federal Reserve at its FOMC meetings. It is set as a range, for example 4.75%-5.00%, though the upper limit (in that case 5.00%) is the quoted figure. Market expectations for future Fed funds rate are tracked by the CME FedWatch tool, which shapes how many financial markets behave in anticipation of future Federal Reserve monetary policy decisions.

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.

Markets move fast. We move first.

Orange Juice Newsletter brings you expert driven insights - not headlines. Every day on your inbox.

Editor's Picks

EUR/USD clings to small gains near 1.1750

Following a short-lasting correction in the early European session, EUR/USD regains its traction and clings to moderate gains at around 1.1750 on Monday. Nevertheless, the pair's volatility remains low, with investors awaiting this weeks key data releases from the US and the ECB policy announcements.

GBP/USD edges higher toward 1.3400 ahead of US data and BoE

GBP/USD reverses its direction and advances toward 1.3400 following a drop to the 1.3350 area earlier in the day. The US Dollar struggles to gather recovery momentum as markets await Tuesday's Nonfarm Payrolls data, while the Pound Sterling holds steady ahead of the BoE policy announcements later in the week.

Gold holds gains above $4,300 on prospect of further Fed rate cuts

Gold price extends its upside to around $4,305, the highest since October 21, during the early Asian trading hours on Tuesday. The precious metal edges higher on further US Federal Reserve cut bets. The US Nonfarm Payrolls report will take center stage later on Tuesday. Also, the US Retail Sales and Purchasing Managers Index will be published.

Ethereum: BitMine acquires 102,259 ETH as price plunges 5%

Ethereum treasury company BitMine Immersion scaled up its digital asset stash last week after acquiring 102,259 ETH since its last update. The purchase has increased the company's holdings to 3.96 million ETH, worth about $11.82 billion. BitMine aims to accumulate 5% of ETH's circulating supply.

Big week ends with big doubts

The S&P 500 continued to push higher yesterday as the US 2-year yield wavered around the 3.50% mark following a Federal Reserve (Fed) rate cut earlier this week that was ultimately perceived as not that hawkish after all. The cut is especially boosting the non-tech pockets of the market.

Solana Price Forecast: SOL consolidates as spot ETF inflows near $1 billion signal institutional dip-buying

Solana (SOL) price hovers above $131 at the time of writing on Monday, nearing the upper boundary of a falling wedge pattern, awaiting a decisive breakout.