- GBP/JPY attracts some sellers on Wednesday amid a modest JPY strength.
- Spot prices move little following the release of the UK consumer inflation.
- The downside seems limited as traders await the BoJ decision on Friday.
The GBP/JPY cross extends the previous day’s late pullback from the vicinity of mid-213.00s and trades with a negative bias on Wednesday, snapping a two-day winning streak. Spot prices remain depressed around the 212.20-212.15 region through the first half of the European session and move little following the release of UK consumer inflation figures.
The UK Office for National Statistics reported that the annual Consumer Price Index (CPI) rose 3.4% in December, compared to the previous month’s reading of 3.2% and above the 3.3% increase expected. Meanwhile, the core CPI, which excludes volatile energy and food prices, was up 3.2% on a yearly basis, matching expectations and November’s print. The data makes it unlikely that the Bank of England (BoE) will cut interest rates at its policy meeting early next month, though it does little to provide any meaningful impetus to the British Pound (GBP) or the GBP/JPY cross.
Market participants are still pricing in the possibility that the UK central bank will lower borrowing costs at least two more times in 2026. This marks a significant divergence in comparison to prospects for further policy tightening by the Bank of Japan (BoJ), which is seen as a key factor behind the Japanese Yen’s (JPY) relative outperformance against its British counterpart. Apart from this, the prevalent risk-off environment, fueled by rising tensions over Greenland and geopolitical uncertainties, benefits the safe-haven JPY and exerts some downward pressure on the GBP/JPY cross.
The JPY bulls, however, lack conviction and opt to wait for more cues about the likely timing of the next interest rate hike by the BoJ. Hence, the focus will remain glued to the outcome of a two-day BoJ policy meeting on Friday. In the meantime, concerns about Japan’s fiscal health, amid Prime Minister Sanae Takaichi’s expansionary policies, could act as a headwind for the JPY and help limit the downside for the GBP/JPY cross. Hence, it will be prudent to wait for strong follow-through selling before traders start positioning for any meaningful depreciating move in the near term.
