GBPJPY has rallied ahead of a Bank of England rate meeting.
GBPJPY – Daily Chart
GBPJPY has rallied from support at the 191.50 level and has mounted a three-day rally. The price may meet resistance after the BOJ refuses to accept higher price levels. Necessary support would come in at the 191.50-192 level for the GBPJPY.
The pair had Japanese data at 9:50 a.m., the BOJ summary of opinions at 1:00 p.m., and the economic indices at 7:00 p.m., followed by the BoE.
Further highs in the GBPJPY could create selling opportunities with the Bank of Japan lurking with intervention.
“It’s going to be very difficult for the UK and Europe to move in a very different direction from the Fed,” said Iain Buckle at Aegon.
“The Bank and European Central Bank can start, but they just can’t go without the Fed or keep going without the Fed,” added Nick Chatters, also at Aegon. While the BoE “would like to” cut rates in June, they can likely only “get away with two cuts without the Fed”.
The markets need clarification on the BoE’s mixed messaging, with chief economist Huw Pill arguing that rates may stay higher for longer. Holding interest rates steady could lead to gains in the pound sterling, but the Bank of Japan would be unhappy with further pressure on the yen.
Governor Kazuo Ueda repeated on Wednesday that the Bank of Japan may take action on monetary policy if a fall in the yen affects prices significantly. That was the strongest hint that the central bank could go further than currency intervention.
Ueda told parliament, “We need to be mindful of the risk that the impact of currency volatility on inflation is becoming bigger than in the past” as firms seek to raise prices and wages.
Finance Minister Shunichi Suzuki also said he had “strong concern” on Wednesday over the negative impact of a weak yen, such as higher import costs. He reminded markets that Tokyo was ready to intervene in the market again.
