GBP/JPY Rises Modestly To Around 205.50 Ahead Of UK CPI Inflation Rate Announcement

During the Asian session on Wednesday, GBP/JPY rose to around 205.50. Selling pressure in the Japanese yen (JPY) has provided some support for this cross. Traders will keep a close eye on UK June consumer price index (CPI) due on Wednesday. The data could provide some insight into the direction of UK interest rates.

Encouraging UK growth data last week helped delay the Bank of England’s (BOE) first interest rate cut. Meanwhile, Swati Dhingra, an external member of the Bank of England’s monetary policy committee, said on Monday that the central bank should cut interest rates at its next meeting on August 1 to ease pressure on households and businesses. Dhingra, the most dovish member of the Monetary Policy Committee, believes inflation is unlikely to rise sharply again.

Later in the day, UK CPI data will take center stage. The UK’s monthly CPI inflation rate in June is expected to fall to 0.1% from 0.3% in May, and the annual CPI inflation rate is expected to stabilize at 2.0%. If the inflation data unexpectedly rises, it may not be conducive to a rate cut in August, which will boost the cross’s rise.

On the other hand, further FX intervention from the Japanese authorities could support the yen and limit the pair’s upside. Data released on Tuesday showed that the Bank of Japan intervened in the foreign exchange market for two consecutive trading days last Thursday and Friday.

Additionally, recent data points to a pickup in economic activity in Japan. Japan’s Tankan manufacturing sentiment index rose to 11.0 in July from 6.0 in June. This is the first increase in four months.

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