- GBP/JPY eased higher with BoE expected to begin cutting rates in August.
- BoJ broadly expected to stand pat on rates for the foreseeable future.
- GBP recovery and deflating Yen mean GBP/JPY set for third straight week of gains.
GBP/JPY tipped into a fresh daily high above 188.00 on the pair’s march toward all-time highs above 189.00 with the Pound Sterling (GBP) climbing on market confidence that the Bank of England (BoE) is on pace to begin cutting interest rates by August, while the Bank of Japan (BoJ) remains planted in a firmly dovish monetary policy stance for the foreseeable future, driving the Japanese Yen (JPY) into the floorboards.
Inflation in the UK unexpectedly ticked higher in December, but GBP bidders remain unshaken from their conviction that the BoE will begin the next rate-cutting cycle. According to reporting by Reuters, JP Morgan is anticipating 75 basis points in reference rate declines from the BoE by the end of 2024, with the first cut to start in August. JP Morgan previously expected the first cut to come in November.
Despite an uptick in overall annual inflation, investors have noticed that price declines accelerated in the final quarter of 2023, leading markets to believe that UK inflation will continue to decline to 2% by the end of the year, a full 18 months before the BoE expects price growth to hit the target bound.
Rate watchers will be holding back from any Yen bidding until the spring wage growth figures get released, with the BoJ plainly telegraphing that the Japanese central bank won’t be lifting interest rates out of negative territory until wage growth accelerates appreciably. The BoJ is hoping for a virtuous cycle of accelerating wage growth to fuel further inflation looking forward, but a miss for wages would imply price growth is set to continue declining.
With the BoJ firmly hinging rate increases on a positive wage growth spiral, investors see little reason to bid the Yen higher.
GBP/JPY Technical Outlook
The Guppy rose to a fresh six-week high of 188.18 on Thursday, edging out Wednesday’s peak bids and continuing to inch closer towards multi-year highs beyond the 195.00 handle, a price ceiling last set back in 2015 at 195.88.
GBP/JPY climbed over the 200-hour Simple Moving Average (SMA) in early January, rising over 5% after a bounce from the 179.00 handle.
The pair saw a 5.5% decline from November’s peak of 188.66, catching a recovery bid after the 200-day SMA rose to bolster price action back into the current price zone above the 50-day SMA near 184.00.
GBP/JPY Hourly Chart
GBP/JPY Daily Chart
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