The GBP/JPY currency pair extended its gains for the third consecutive session, trading around 189.00 during the early European session on Wednesday. This increase occurred despite a lower-than-expected Consumer Price Index (CPI) report from the United Kingdom, which has heightened the chances of interest rate cuts by the Bank of England (BoE).
In July, the UK’s CPI rose by 2.2% year-on-year, up from 2.0% previously, but fell short of the anticipated 2.3% increase, slightly surpassing the BoE’s 2.0% target. Core CPI, which excludes volatile food and energy prices, increased by 3.3% year-on-year, a decrease from 3.5% and below the market consensus of 3.4%. Monthly CPI showed a decline of 0.2%, following a 0.1% increase in June.
Despite the softer UK inflation data, GBP/JPY gains could face limitations as safe-haven demand for the Yen may rise due to escalating geopolitical tensions in the Middle East. The BBC reported that the United States has deployed a guided missile submarine to the region. Additionally, Israeli operations near Khan Younis in southern Gaza have resulted in at least 18 fatalities, according to Palestinian medics and CBC News.
Support for the Yen is also bolstered by expectations that the Bank of Japan (BoJ) may raise rates again in 2024. Japan’s parliament is set to hold a special session on August 23 to review the BoJ’s recent interest rate hike.
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