28 Nov 2024

• GBP/JPY may appreciate as the BoE leans toward a gradual approach to policy easing.
• The Pound Sterling may gain ground as BoE officials support following a gradual policy-easing approach.
• The likelihood of a BoJ’s 25 basis point hike in December rose to nearly 60%, against 50% a week ago.
• The GBP/JPY currency pair has successfully halted its five-day downward trend, currently trading at approximately 191.90 during the Asian trading session on Thursday. This stabilization comes amidst a backdrop of limited economic data releases from the United Kingdom, with expectations for a similarly sparse economic calendar in the week ahead.
  
  As a result, the Pound Sterling (GBP) is likely to be influenced by prevailing market sentiments regarding the Bank of England's (BoE) interest rate decision scheduled for December. The GBP/JPY exchange rate may find some support, particularly as BoE officials seem to be adopting a cautious stance towards any adjustments in monetary policy.
  
  In a recent address at King’s Business School, BoE Deputy Governor Clare Lombardelli underscored the importance of obtaining clearer signals of easing inflationary pressures before considering any further reductions in interest rates. Her remarks highlight the central bank's careful approach to navigating the current economic landscape.
  
  Deputy Governor Lombardelli also raised concerns about the risks associated with inflation remaining above the BoE's target level. She pointed out that wage growth has stabilized within the range of 3.5% to 4.0%, while the Consumer Price Index (CPI) is currently hovering around 3%, significantly above the targeted 2%. These factors could complicate the BoE's policy-making process, as they strive to balance economic growth with inflation control.
  
  However, the potential for an upward movement in the GBP/JPY pair may face challenges, particularly as the Japanese Yen (JPY) gains traction amid increasing expectations for another interest rate hike by the Bank of Japan (BoJ) as early as next month. Market sentiment has shifted notably, with the probability of a 25 basis point increase in December rising to approximately 60%, compared to around 50% just a week ago.
  
  Additionally, BoJ Governor Kazuo Ueda has recently indicated the possibility of tightening monetary policy, citing concerns over the prolonged weakness of the Yen. This has led investors to closely monitor upcoming inflation data from Tokyo, scheduled for release on Friday, as it could provide crucial insights into the BoJ's future policy direction and its implications for the currency pair.
  
  In summary, while the GBP/JPY pair has found some stability, the interplay of economic indicators, central bank policies, and market sentiment will be critical in determining its trajectory in the near term. Investors will be keenly observing developments from both the BoE and BoJ, as these will significantly influence the dynamics of the currency pair moving forward.