- GBP/JPY attracts sellers for the second day in a row in reaction to a softer CPI in the UK.
- The data reaffirms bets on a BoE rate cut in November and weighs heavily on the GBP.
- A sustained break below the key 200-day SMA should pave the way for more losses.
The GBP/JPY cross attracts strong selling following the release of UK consumer inflation figures on Wednesday and retreats further from the more than two-week high hit the previous day. The second consecutive day of decline drags spot prices to a multi-day low, around the 193.70 area during the first half of the European session, with the bears now hoping for a break below the SMA of 200 days before opening new positions.
The UK’s Office for National Statistics (ONS) reported that the headline Consumer Price Index (CPI) remained flat in September with the annual rate slowing to 1.7% from 2.2% in August. This was the lowest reading since April 2021 and adds to recent statements by Bank of England (BoE) Governor Andrew Bailey saying the central bank could cut interest rates more aggressively if there is more good news. about inflation. Markets reacted quickly and are now forecasting a 90% chance of the BoE reducing borrowing costs in November, which in turn weighs heavily on the British Pound (GBP).
Meanwhile, a lack of details on the full size of China’s fiscal stimulus left investors uncertain. Aside from this, lingering geopolitical risks arising from ongoing conflicts in the Middle East are weighing on global risk sentiment, evidenced by a generally weaker tone in equity markets. This, in turn, benefits the safe haven status of the Japanese Yen (JPY) and puts additional pressure on the GBP/JPY cross. That said, doubts over the Bank of Japan’s (BoJ) rate hike plans limit any significant JPY appreciation move and should act as a tailwind for the currency pair.
Even from a technical perspective, the GBP/JPY cross has been oscillating in a familiar range for the last two weeks or so. This constitutes the formation of a rectangle on the daily chart and points to indecision about the next directional move. Furthermore, the aforementioned mixed fundamental background makes it prudent to wait for continued strong selling and a sustained break below the 200-day SMA before confirming a bearish breakout.
economic indicator
Consumer Price Index (YoY)
The IPC publishes it National Statistics and measures the change in prices of a basket of goods and services purchased by households for consumption. The CPI is the main indicator to measure inflation and changes in consumption trends. A reading higher than expectations is bullish for the pound, while a reading lower is bearish.
Last post:
Wed Oct 16, 2024 06:00
Frequency:
Monthly
Current:
1.7%
Dear:
1.9%
Previous:
2.2%
Fountain:
Office for National Statistics
The Bank of England is tasked with keeping inflation, measured by the main Consumer Price Index (CPI), at around 2%, which gives the monthly publication its importance. A rise in inflation means an increasingly rapid rise in interest rates or a reduction in bond purchases by the BOE, which means squeezing the supply of pounds. On the contrary, a drop in the pace of price increases indicates a more flexible monetary policy. A higher than expected result tends to be bullish for the GBP.
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.
