On Thursday, the GBP/JPY currency pair attracted dip-buying near the 189.65-189.60 level, rising to a daily high during the early European session. Currently, the pair trades just below the mid-190.00s, maintaining a range established over the past week and remaining under the significant 200-day Simple Moving Average (SMA).
The British Pound (GBP) is benefiting from reduced expectations of a further interest rate cut by the Bank of England (BoE), following recent UK inflation and labor market data. This, along with a positive UK GDP report, suggests a resilient economy and raises speculation that the BoE may keep rates steady in September. Additionally, a generally positive risk sentiment is weighing on the safe-haven Japanese Yen (JPY), providing support for the GBP/JPY cross.
The JPY is further pressured by domestic political instability, following Japanese Prime Minister Fumio Kishida’s resignation, which may pause the Bank of Japan‘s (BoJ) plans for gradual interest rate hikes. Despite this, investors are optimistic that Japan’s improving macroeconomic conditions will lead the BoJ to increase rates later this year. Ongoing geopolitical risks are also likely to prevent a significant decline in the JPY, capping potential gains in the GBP/JPY cross.
Looking ahead, market participants are awaiting the release of the flash UK PMIs for short-term trading signals, while attention will then turn to Japan’s Nationwide CPI data on Friday. BoE Governor Andrew Bailey’s speech at the Jackson Hole Symposium is also anticipated to introduce volatility and impact the GBP/JPY cross.
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