- The GBP/JPY weakens around 195.05 in the early European session on Wednesday.
- The feeling of caution supports the Japanese Yen, but the reduction of the expectations of a rise in the Boj’s rates could limit his bullish potential.
- It is widely expected that the BOE maintain interest rates at 4.25% on Thursday.
The GBP/JPY crossing operates in negative territory about 195.05 during the first hours of European negotiation on Wednesday. The caution at the market provides some support to the Japanese Yen (JPY), a safe refuge coin. Investors will be attentive to the decision on the interest rates of the Bank of England (BOE) on Thursday.
Investors evaluate the Israel-Iran conflict after the US president Donald Trump urged to immediately evacuate Tehran. Trump said he wants a permanent end to Iran’s route to nuclear weapons. In addition, Trump published on his social networks platform on Tuesday night, asking for the “unconditional surrender” of Iran. The renewed geopolitical tensions in the Middle East increase the flows to safe shelters, benefiting the JPY in front of the sterling pound.
Inflation in the United Kingdom was reduced to 3.4% year -on -year in May from 3.5% in April, according to the National Statistics Office on Wednesday. This reading was in line with the market consensus. Meanwhile, the underlying IPC, which excludes volatile food and energy prices, rose 3.5% year -on -year in May compared to the previous 3.8%, softer than the 3.6% expectation.
Monetary markets expect the BOE to maintain stable rates at 4.25% at their June meeting on Thursday and foresee around two more basic points (PBS) more for December. The markets expect the Central Bank of the United Kingdom to maintain its “gradual and careful” approach towards the flexibility of politics. Any moderate comments from BOE officials could drag the GBP down in the short term.
LIBRA ESTERLINA FAQS
The sterling pound (GBP) is the oldest currency in the world (886 AD) and the official currency of the United Kingdom. It is the fourth most commercialized currency exchange unit (FX) in the world, representing 12% of all transactions, with an average of $ 630 billion a day, according to data from 2022. Its key commercial peers are GBP/USD, which represents 11% of FX, GBP/JPY (3%) and EUR/GBP (2%). The sterling pound is issued by the Bank of England (BOE).
The most important factor that influences the value of sterling pound is the monetary policy decided by the Bank of England. The Bank of England bases its decisions itself has achieved its main objective of “price stability”: a constant inflation rate of around 2%. Its main tool to achieve this is the adjustment of interest rates. When inflation is too high, the Bank of England will try to control it by raising interest rates, which makes access to credit for people and companies more expensive. This is generally positive for sterling pound, since higher interest rates make the United Kingdom a more attractive place for global investors to invest their money. When inflation falls too much it is a sign that economic growth is slowing down. In this scenario, the Bank of England will consider lowering interest rates to reduce credit, so that companies will borrow more to invest in projects that generate growth.
Published data measure the health of the economy and can affect the value of sterling pound. Indicators such as GDP, manufacturing and services PMI and employment can influence the direction of the sterling pound.
Another important fact that is published and affects the pound sterling is the commercial balance. This indicator measures the difference between what a country earns with its exports and what you spend on imports during a given period. If a country produces highly demanded export products, its currency will benefit exclusively from the additional demand created by foreign buyers seeking to buy those goods. Therefore, a positive net trade balance strengthens a currency and vice versa in the case of a negative balance
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.
