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- GBP/JPY is approaching 160.00 and investors are still confused about the Bank of Japan’s future policy stance.
- The Bank of England may find a significant downward trend in inflation from late spring onwards, amidst its tightening monetary policy.
- With inflation steadily rising, the Bank of Japan may seek an exit from its expansionary policy.
- GBP/JPY could see power pack action after release of UK retail sales data.
GBP/JPY extended its recovery movement above the key resistance at 159.00 in the early European session. The cross is marching towards round level resistance at 160.00 ahead of UK retail sales data.
Assets rebounded from 157.70 on Thursday after the Bank of Japan (BOJ) held on to the status quo by keeping its interest rate and yield targets unchanged. Bank of Japan (BoJ) Governor Haruhiko Kuroda said he would keep rates at -0.10% and keep the 10-year Japanese government bond (JGB) stable around 0%, adding that there is “no need to further widen the bond target band.” He added that Japan’s economy is still on the road to recovery from the pandemic, with the Bank of Japan aiming to sustainably achieve its 2% inflation target alongside wage growth. I added that there is.
BOE’s Bailey sees inflation trending down all the way in late spring
Policymakers at the Bank of England (BOE) have made great efforts to slow the pace of the Consumer Price Index (CPI) by accelerating interest rates. His CPI report for December showed inflation trending back-to-back for the first time since the Covid-19 pandemic period, led by falling energy prices. The UK is one of the countries that has lagged behind in slowing inflation.
Bank of England Governor Andrew Bailey said on Thursday: While commenting on terminal rates, the Governor of the Bank of England sees interest rates peak at his 4.5%, close to market expectations. Bank of England governor sees recession shallower than historic
Earlier, Bank of England policymakers said rising wages were responsible for escalating inflation. Labor shortages are shifting bargaining power in favor of job seekers.
Investors await UK retail sales for new clues
For further guidance, investors should keep an eye on UK retail sales data due on Friday. Forecasts show that full-year retail sales (December) data could contract by 4.1% against a reported contraction of 5.9% in the same period last year. However, monthly economic data is expected to expand by 0.5% against a contraction of 0.4%. The recovery in retail demand on a monthly basis may be a result of rising labor costs due to the bargaining power of employees.
Better-than-expected retail demand could boost future inflation expectations and fuel hawkish Bank of England bets.
Mixed Japanese Inflation Can’t Boost Japanese Yen
The GBP/JPY rally inspired by the Bank of Japan’s unaltered monetary policy has since weakened as investors still believe the central bank will seek an exit from a decade of ultra-accommodative monetary policy. rice field. An upward trend in inflation and the administration’s efforts to raise wages could end expansionary monetary policy. However, the release of the national CPI indicates that investors should wait further before reaching any conclusions.
Japan’s national headline consumer price index landed at 4.0%, lower than the consensus 4.4% but higher than the previous release’s 3.8%. Excluding oil and food prices, core inflation was 3.0% higher than the forecast of 2.9% and the previous release of 2.8%. The national consumer price index, excluding fresh food, is in line with the estimate at 4.0%.
GBP/JPY Technical Outlook
The recovery move from GBP/JPY around the upward trendline of the rising triangle chart pattern plotted from the January 13th low of 155.65 was above the 20-period exponential moving average (EMA) of 159.22. There is no denying that the short-term trend is bullish right now. The horizontal resistance of the volatility contraction chart pattern is located at the January 9 high of 160.92.
Meanwhile, the Relative Strength Index (RSI) (14) is above 60.00, indicating that the upward momentum is currently active. Roughly speaking, a cross may find a barricade after reaching the above horizontal resistance.
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