- GBP/JPY continues to lose ground despite low trading volume due to the bank holiday in Japan.
- The Japanese Yen is supported by the hawkish tone surrounding the Bank of Japan.
- The Bank of England is expected to keep rates unchanged at its policy meeting on Thursday.
GBP/JPY extends its decline for the second consecutive day, trading around 184.20 during European hours on Monday. The Japanese Yen (JPY) finds support despite low trading volume due to the Respect for the Aged Day bank holiday in Japan. This downward pressure on the GBP/JPY cross is likely due to the hawkish sentiment around the BoJ.
Traders are awaiting interest rate decisions from the Bank of England (BoE) and the Bank of Japan (BoJ) later this week. The BoJ is widely expected to keep rates unchanged, leaving open the possibility of a rate hike as early as October. Similarly, the BoE is also expected to keep rates unchanged in its next decision.
On Friday, Fitch Ratings’ latest report on the Bank of Japan’s policy outlook suggests the BoJ could raise rates to 0.5% by the end of 2024, 0.75% in 2025, and 1.0% by the end of 2026. In addition, BoJ hawkish policymaker Naoki Tamura stated on Thursday that the central bank should raise interest rates to at least 1% as early as the second half of the next fiscal year. This comment reinforces the BoJ’s commitment to ongoing monetary tightening.
On the UK front, the British Pound (GBP) will be guided by the Consumer Price Index (CPI) data for August, scheduled for release on Wednesday. Headline inflation is expected to rise steadily by 2.2% year-on-year in August. Meanwhile, annual core inflation could grow at a faster pace of 3.5% from 3.3% in July.
Interest Rates FAQs
Financial institutions charge interest rates on loans to borrowers and pay them out as interest to savers and depositors. These are influenced by base interest rates, which are set by central banks based on economic developments. Central banks are typically mandated to ensure price stability, which in most cases means targeting an underlying inflation rate of around 2%.
If inflation falls below target, the central bank can cut base interest rates, in order to stimulate lending and boost the economy. If inflation rises substantially above 2%, the central bank typically raises base lending rates to try to reduce inflation.
In general, higher interest rates help strengthen a country’s currency by making it a more attractive place for global investors to park their money.
Higher interest rates influence the price of Gold because they increase the opportunity cost of holding Gold rather than investing in an interest-bearing asset or depositing cash in the bank.
If interest rates are high, the price of the US Dollar (USD) usually rises and since Gold is priced in dollars, the price of Gold falls.
The federal funds rate is the overnight rate at which U.S. banks lend to each other. It is the official interest rate typically set by the Federal Reserve at its FOMC meetings. It is set within a range, for example 4.75%-5.00%, although the upper limit (in this case 5.00%) is the figure quoted.
Market expectations for the Federal Reserve funds rate are tracked by the CME’s FedWatch tool, which measures the behavior of many financial markets in anticipation of future Federal Reserve monetary policy decisions.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
