During the early European session on Wednesday, the GBP/JPY pair relinquished its two-day winning streak, hovering around 192.20. The Pound Sterling (GBP) initially climbed to an intraday high of 192.40 before retracing its gains in response to the release of hotter-than-expected UK inflation data.
The Office for National Statistics reported that the headline annual UK Consumer Price Index (CPI) rose by 3.2% in March, marking a slight deceleration from the 3.4% increase recorded in February. While this figure exceeded the market consensus of 3.1%, it remains higher than the Bank of England‘s (BoE) 2.0% target. Additionally, the core CPI inflation dropped to 4.2% year-on-year in March from 4.5% in February. Meanwhile, the UK monthly CPI exhibited a 0.6% increase in March, matching the pace observed in February.
The GBP saw a surge in demand as investors adjusted their expectations regarding a potential rate cut by the BoE in September.
Conversely, on the Japanese Yen (JPY) front, the Bank of Japan (BoJ) has maintained a cautious approach to policy normalization. The BoJ’s quarterly outlook report forecasts Japanese CPI inflation to remain above 2% throughout fiscal year 2024, with a subsequent deceleration in fiscal year 2025. This outlook suggests that interest rates will likely remain at extremely low levels for an extended period, exerting downward pressure on the Japanese Yen.
Investors are keenly awaiting the BoJ’s fresh quarterly growth and price projections, scheduled for release at its April 25–26 policy meeting. Any indications provided during this meeting regarding the trajectory of interest rates will be closely monitored by market participants.
