The GBP/JPY currency pair recovered to around 191.20 during the early European session on Tuesday, snapping a two-day losing streak. This rebound was largely supported by the broad sell-off of the Japanese Yen (JPY). Traders are now turning their attention to Japan’s National Consumer Price Index (CPI) report, set to be released on Friday.
The Bank of Japan (BoJ) has forecasted that a strong economic recovery in Japan could help inflation reach the 2% target sustainably. Such a development might prompt the BoJ to consider further rate hikes following last month’s adjustment, as it continues to unwind years of significant monetary stimulus. This potential tightening could strengthen the JPY, posing a challenge for the GBP/JPY cross.
However, the risk-on sentiment and easing geopolitical tensions in the Middle East may dampen demand for the safe-haven JPY. The United States has reported that Israeli Prime Minister Benjamin Netanyahu has accepted a proposal aimed at bridging differences with Hamas, potentially reducing geopolitical risks. Still, any signs of escalating political tensions could revive safe-haven flows, favoring the JPY.
Meanwhile, rising speculation that the Bank of England (BoE) will maintain its interest rate at 5.0% in its upcoming September meeting could lend support to the Pound Sterling (GBP). According to Rupert Thompson, IBOSS chief economist, “The BoE is most likely to leave rates unchanged at their next meeting in September, with the next cut possibly coming in November.”
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