The GBP/JPY cross is struggling to find a clear intraday direction, oscillating within a narrow trading range below the key 197.00 level during the first half of the European session on Tuesday. The mixed fundamental backdrop and the thin trading volumes due to the Christmas Eve holiday are contributing to the indecisiveness in the market.
The Japanese Yen (JPY) remains under pressure, largely due to ongoing uncertainty over the timing of the next interest rate hike by the Bank of Japan (BoJ). At the conclusion of its December policy meeting, the BoJ offered few indications regarding the timing of a rate increase. BoJ Governor Kazuo Ueda suggested last week that the central bank may need more information on wage trends before moving forward with a hike, leaving markets uncertain. This dovish stance, coupled with a generally positive risk environment, continues to weigh on the JPY and provides support for the GBP/JPY cross.
On the other hand, data released last Friday showed that Japan’s core inflation accelerated in November, keeping the door open for a potential BoJ rate hike in January or March. However, concerns that Japanese authorities might intervene to stabilize the currency have kept traders cautious about taking overly aggressive bearish positions on the JPY. Japanese Finance Minister Katsunobu Kato reiterated this Tuesday that the government is prepared to act against excessive foreign exchange fluctuations, adding another layer of uncertainty to the JPY outlook. Additionally, persistent geopolitical risks and concerns over trade wars continue to bolster the Yen’s safe-haven appeal.
For the British Pound (GBP), the outlook remains pressured by the Bank of England’s (BoE) recent dovish stance. Last week’s decision to leave interest rates unchanged was not unanimous, with three members of the BoE’s Monetary Policy Committee voting to cut rates. Furthermore, the BoE downgraded its economic growth forecast for the fourth quarter of 2024, further dampening the outlook for the Pound. This has capped the upside potential for the GBP/JPY cross.
Given these mixed dynamics, it would be prudent to wait for sustained strength and confirmation above the 197.00 level before considering further upside, especially if the pair is to extend the current monthly uptrend that began near the 188.00 mark.
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