The GBP/JPY cross attracted some buying interest near the 202.30-202.25 area during the Asian session on Monday, though it lacked follow-through. Spot prices remain confined within Friday’s broader range and are currently trading around the mid-202.00s, nearly unchanged for the day amid relatively thin liquidity due to a holiday in Japan.
The Japanese Yen (JPY) continues to be undermined by uncertainty surrounding a potential Bank of Japan (BoJ) rate hike, which acts as a key factor providing a tailwind for the GBP/JPY cross. Investors appear convinced that the BoJ may resist further policy tightening amid speculation that Japan’s Prime Minister Sanae Takaichi will pursue aggressive fiscal spending plans.
Moreover, BoJ Governor Kazuo Ueda stated last week that there are no preset ideas regarding the timing of the next rate hike. This, combined with the bullish sentiment across global financial markets, keeps the safe-haven JPY depressed at the start of the new week. However, any meaningful depreciation of the JPY seems limited due to fears that government authorities could intervene to stem further weakening of the domestic currency.
On the other hand, concerns about the UK’s fiscal outlook ahead of Finance Minister Rachel Reeves’ Autumn budget scheduled for November 26 may hold traders back from placing aggressive bullish bets on the British Pound (GBP). Along with expectations of more rate cuts by the Bank of England (BoE), this exerts a cap on the GBP/JPY cross, warranting caution before positioning for further upside ahead of key central bank event risks.
The BoE is set to announce its policy decision on Thursday, with a one-in-three chance of a 25 basis points rate cut and roughly a 68% probability of a rate reduction by year-end. Softer inflation and fiscal challenges provide more scope to ease policy. Additionally, a further softening in wage growth and rising unemployment have revived bets on an imminent rate cut.
Therefore, the BoE’s outlook will play a crucial role in influencing near-term GBP price dynamics and provide meaningful impetus to the GBP/JPY cross. Nevertheless, the fundamental backdrop suggests that any subsequent upward move is likely to be sold into, signaling cautious optimism in the market.
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