The GBP/JPY cross is trading stronger near 205.50 during the Asian session on Wednesday, buoyed by selling pressure around the Japanese Yen (JPY). Traders are closely monitoring the UK Consumer Price Index (CPI) for June, due for release today, as it may provide crucial insights into the UK interest rate trajectory.
Last week’s robust UK growth figures have delayed the anticipated timing for the Bank of England’s (BoE) first rate cut. However, BoE’s Monetary Policy Committee member, Swati Dhingra, advocated on Monday for a rate cut at the next meeting on August 1 to alleviate pressures on households and businesses. As the committee’s most dovish member, Dhingra believes a significant rise in inflation is unlikely.
Today’s UK CPI data will be pivotal. Analysts expect a slight decrease in the monthly CPI to 0.1% for June from 0.3% in May, while the annual CPI inflation is anticipated to remain steady at 2.0% year-over-year. A higher-than-expected CPI reading could counter arguments for a rate cut next month and strengthen the British pound against the JPY.
Conversely, potential foreign exchange (FX) interventions by Japanese authorities might support the JPY, potentially limiting the upside for the GBP/JPY cross. Recent data revealed that the Bank of Japan (BoJ) intervened in the FX market on consecutive trading days last Thursday and Friday.
Moreover, Japan’s economic data indicates a revival in activity. The Tankan Manufacturers Sentiment Index rose to 11.0 in July from 6.0 in June, marking the first increase in four months. This positive economic sentiment could provide further support for the JPY, adding complexity to the GBP/JPY trading dynamics.
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