Key Points: -
· GBP/JPY sees some buying interest on Friday and reaches a new multi-year high.
· The Bank of Japan's decision to maintain its current policy stance weighs on the Japanese Yen and provides support for the GBP/JPY cross.
· The market's expectations for additional rate hikes by the Bank of England (BoE) also bolster the British Pound and contribute to the upward movement of the pair.
Today's Scenario: -
The GBP/JPY pair has found support near 181.15 during the Tokyo session following a minor corrective move. Investors are optimistic that the Bank of England (BoE) will announce a significant consecutive rate hike in its upcoming monetary policy meeting in August.
In June, BoE Governor Andrew Bailey surprised investors by raising interest rates by 50 basis points (bps) to 5%, surpassing expectations of a smaller 25 bps hike. This decision was prompted by an unexpected surge in May's headline Consumer Price Index (CPI) and new highs in core inflation, which reached 7.1%. These inflationary pressures compelled the central bank to implement a larger rate hike.
Looking ahead, investors will gain further insight from the release of the inflation report for June, scheduled for Wednesday at 06:00 GMT. According to consensus estimates, the monthly headline CPI is expected to show a slower pace of 0.4%, compared to the previous pace of 0.7%. Additionally, annualized inflation is projected to decelerate to 8.2%, down from the previous release of 8.7%. Core inflation is expected to remain stable at 7.1%.
Given the persistent elevation in core CPI, it is likely that the BoE will continue to raise interest rates in the future. However, higher interest rates are placing a burden on households in the UK economy. Property prices have seen a decline for the second consecutive month, and overall demand in the real estate sector has decreased as investors shy away from higher interest rate obligations.
Regarding the Japanese Yen, investors are awaiting the interest rate decision from the Bank of Japan (BoJ), which is expected to be announced next week. BoJ's former top economist, Seisaku Kameda, has forecasted that the central bank will not make any adjustments to its interest rate policy. He also mentioned that the central bank is likely to maintain its forecasts for FY2024 and 2025 without significant changes.
Diagram of GBP/JPY: -
Economic Events: -
Buy Scenario: -
On the other hand, the pair has maintained stability within a bullish channel and has moved away from the additional support level at 179.30. This supports the overall bullish outlook and suggests that we should continue to wait for positive momentum to gather, which would facilitate reaching the upside targets at 182.10 and 182.80.
The projected trading range for today is expected to be between 180.80 and 182.10. Till we do not advise to buy GBP/JPY.
Sell Scenario: -
The GBP/JPY pair has been relatively stable, hovering near the 181.30 level, close to the 55-day Simple Moving Average (MA55), due to a lack of positive momentum. The stochastic indicator approaching the 20 level has contributed to the subdued movement. Till we do not advise to sell GBP/JPY.
Support and Resistance Level: -
S1 180.58 - R1 182.68
S2 179.34 - R2 183.54
S3 178.48 - R3 184.78