GBP/JPY rises above 198.00 as traders expect BoE to make nominal rate cut in November

• GBP/JPY could appreciate further as the BoE is expected to deliver a 25 basis point rate cut on Thursday.
• The Office for Budget Responsibility revised its 2025 inflation forecast to 2.6% from the March estimate of 1.5%.
• BoJ meeting minutes indicated that board members mostly agreed to continue raising interest rates.

GBP/JPY extends its gains for the second consecutive session, trading around 198.30 during European hours on Wednesday. However, upside potential for the GBP/JPY cross appears possible as the Bank of England (BoE) is projected to lower interest rates by only 25 basis points on Thursday.

Investor expectations now point to fewer rate cuts in 2024 compared to projections made before last week’s budget announcement. The Office for Budget Responsibility recently revised its inflation forecast for 2025, increasing it to an average of 2.6% from the March estimate of 1.5%. This update aligns closely with the BoE’s August forecast, which projects inflation of 2.4% in one year, 1.7% in two years and 1.5% in three years.

Investors will closely monitor BoE Governor Andrew Bailey’s press conference for information on how the FY2025 budget could influence inflation expectations and shape monetary policy decisions in December.

The downside to the Japanese Yen (JPY) is expected to be limited, influenced by the hawkish tone in the minutes of the recent Bank of Japan (BoJ) meeting. The minutes showed broad agreement among council members to continue raising interest rates as inflation and economic conditions appear to support the central bank’s policy objectives.

The Jibun Bank Japan Services Business Activity Index fell to 49.7 in October, from 53.1 in September, signaling a decline in services activity. This marks the first contraction since June, although it was marginal, with companies reporting slower sales.