- 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.
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
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.
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.
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.
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.
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