GBP/JPY gains ground after hot inflation data from the UK

• On Wednesday's session, the GBP/JPY traded in the 179.93 - 181.61 range.
• Rising Gilts amid hot inflation figures from the UK gave the British Pound traction.
• The Yen weakened on dovish BoJ minutes ahead of inflation figures on Friday.

The GBP/JPY cross trades with gains on Wednesday as hot inflation figures from the UK fueled a rise in the British Gilts, resulting in gains on the GBP ahead of Bank of England’s (BoE) monetary policy decision on Thursday. On the other hand, the Yen lost ground after the Bank of Japan (BoJ) minutes revealed that members consider it appropriate to maintain its dovish stance.

UK reported hot inflation figures 

On Wednesday, the Office for National Statistics from the UK released that inflation, as per the Consumer Price Index (CPI), rose to 8.7% YoY in May vs 8.4% and from its previous figure of 8.7% in April. In addition, the Core figure accelerated to 7.1%, above the 6.8% expected and from the last reading of 6.8%.

Considering this, the British yields are seeing gains across the curve. The 10-year bond yield rose to 4.48%, while the 2-year yield stands at 5.15% and the 5-year at 4.68%, respectively. That being said, the stronger case for BoE’s Thursday decision is a 25 basis point (bps) hike,  which is only near 15% odds of a bigger hike of 50 bps as per World Interest Rate Possibilities (WIRP). In addition, eyes will be on the updated macroeconomic forecast and the vote split of the Monetary Police Committee (MPC).

On the other hand, following the release of the dovish minutes from April’s BoJ meeting, eyes are set on Friday's inflation figures from Japan. In that sense, economists anticipate a year-on-year increase in the CPI to reach 4.1%, surpassing the previous reading of 3.5%. Additionally, the Core inflation rate, which factors out the impact of oil and food prices, is projected to rise from the previous figure of 4.1% to 4.4%.

GBP/JPY Levels to watch

According to the daily chart, the GBP/JPY holds a bullish outlook for the short term.  The Relative Strength Index (RSI) and Moving Average Convergence Divergence (MACD) suggest that buyers are in control while the pair trades above its main moving averages.

Upcoming resistance for GBP/JPY is seen at the daily low of 181.60, followed by the zone at 182.00 and the cycle low at 182.12. On the other hand,The 180.50 area level is key for GBP/JPY to maintain its upside bias. If breached, the price could see a steeper decline towards the 179.90 zone and 179.50 level.

GBP/JPY Daily chart