Jun 21, 2023

GBPJPY surged again last week to drive the pair through upward channel resistance. This week’s UK data will determine the next path for the pound against the Japanese yen.

GBPJPY: Weekly Chart

GBPJPY: Weekly Chart

GBPJPY surged through the 176 area last week and traded above 180. The pair may consolidate as it looks for another push higher.

Wednesday and Thursday will be big for the pair, with a UK inflation reading expected to show a stable core rate of 6.8%, the same as April. The inflation rate is expected to drop from 8.7% to 8.4%. Analysts have had a hard time predicting the level of UK inflation after it remained stuck above 10%, but the Bank of England’s rate hikes are slowly having an effect.

The UK economy has struggled with the double spectre of higher inflation and higher interest rates but has outperformed gloomy projections for a recession. Another raise is more likely with the high inflation level, and some traders think a 50-bps hike is possible.

Thursday will see another meeting of the Bank of England, with traders widely expecting another 25 basis point increase. Some analysts even think the BoE could apply one more shock move of 50 bps before it pauses like the Federal Reserve.

The Organisation for Economic Cooperation and Development (OECD) predicted this month that the UK economy will see annual headline inflation of 6.9% this year, the highest among developed economies.

Another problem for policymakers at the BoE has been a strong employment market. Unemployment was better than expected after analysts had predicted a rise.

That has led to a rise in wages, which will add to the inflation problem. Regular pay growth was 7.2% in the three months to the end of April. Growth in private sector pay, the BoE’s closely watched metric, hit 7.6% year-on-year. The central bank is expected to raise rates to 4.75% tomorrow and could reach as high as 6% this year. That puts the UK interest rate differential far above the Japanese yen, and investors are buying up the GBP to get access to overnight funding interest.

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