Market Analysis

As the UK CPI rose, the GBP/JPY pair struggled to profit, closing slightly above 187.00

Amos Simanungkalit · 18 Sep 202442.5K Views

The GBP/JPY pair finds some dip-buying interest following an intraday drop to the 185.80 area, climbing towards the upper range of its daily movement during the first half of the European session on Wednesday. Currently, spot prices hover around the 187.25-187.30 level, just below the one-week high reached on Tuesday. Despite this rebound, the broader market outlook suggests caution before anticipating a sustained continuation of the recent recovery from near the monthly low.

The British Pound (GBP) gains momentum across the board after the release of the UK Consumer Price Index (CPI) data, which raised expectations that the Bank of England (BoE) might maintain its interest rates. This provided a boost to the GBP/JPY pair. The UK Office for National Statistics (ONS) reported an increase in core CPI, excluding food and energy prices, to a 3.6% year-over-year rate in August, up from the previous 3.3%.

Furthermore, UK Services CPI inflation for August rose to 5.6%, compared to 5.2% in July, while the overall CPI remained steady at 2.2%. This strengthens the belief that the BoE's rate-cutting path may be slower than that of the US Federal Reserve and the European Central Bank (ECB). However, gains for the GBP/JPY pair are limited as traders remain cautious ahead of key central bank decisions.

The BoE is set to announce its rate decision on Wednesday, with market expectations indicating a low probability of a rate cut, although a reduction could still occur in November. Attention will then shift to the Bank of Japan's (BoJ) policy update on Friday, which is likely to influence demand for the Japanese Yen (JPY) and shape the next directional move for the GBP/JPY pair.

For now, sustained buying is required to confirm a near-term bottom around the 183.70-183.75 area, marking a one-month low reached last Wednesday. However, the GBP/JPY pair appears to have broken its two-day winning streak ahead of the BoE and BoJ meetings. In the meantime, the upcoming Federal Reserve decision may introduce volatility, offering short-term trading opportunities.