The GBP/JPY crosscurrency continues to pullback sharply, trading down just shy of 0.37% at around 194.40. This shift in trend occurs as market participants position themselves for the Bank of England’s (BoE) next policy announcement, set for Thursday. Market sentiment continues to be risk-off. Consequently, the duo is now struggling at the support level defined by the 21-day Exponential Moving Average (EMA).
The UK’s financial community has been waiting with bated breath for the BoE’s announcement. Market participants are now fully pricing a 90% probability that the central bank will hold the Bank Rate at 4.25%. This decision follows last week’s inflation data. The latter revealed that the UK’s annual core inflation rate crept back down, descending to 3.5% in May. This is a positive step down from April’s one-year high of 3.8%, though it narrowly missed expectations from market analysts of 3.6%.
The headline annual UK inflation rate has slipped to 3.4%, from 3.5%. This decline is in lock step with the market expectations, as well as the core inflation reading. Collectively, these inflation statistics have led to a much more guarded perspective toward the GBP/JPY exchange rate.
During American trading hours, GBP/JPY retreated from its day’s high of 195.35. Despite this movement emphasizing a bullish trend, the bearish trend prevails as the pair continues to hover around the 21-day EMA. This critical technical indicator is now serving as a macro short-term pivot point, showcasing traders’ hesitation in the face of extreme market uncertainty.
The Yen, long the original safe-haven currency, found support. This is at a time as investors exhibit a lackluster risk appetite as the macrospace remains challenging. The overall risk-averse tone has forced traders to lighten positions and make moves to safer currencies, resulting in volatile swings in currency values.
Japan’s national CPI print is due out on Friday. This upcoming announcement would be a great opportunity to provide more context about the region’s inflation dynamics. Market analysts are interpreting this data to mean that inflationary pressures are here to stay. These pressures would be felt in both the domestic economy and abroad.