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GBP/JPY declines towards 160.00 despite hawkish Bank of England bets

  • GBP/JPY is scaling south towards 160.00 as the UK public inflation projections have cooled off.
  • The BoE is expected to hike its interest rates by 50 bps to 4.0%.
  • An upbeat Japan retail trade data might add to the BoJ’s 2% inflation target.

The GBP/JPY pair sensed selling interest after a pullback to near 160.60 and is declining toward the round-level support of 160.00 in the early Tokyo session. The cross has faced selling pressure despite rising odds of a bigger interest rate hike announcement by the Bank of England (BoE) on Thursday.

In the interest rate week, investors are watching closely for the interest rate decision by the BoE as the inflation rate in the United Kingdom economy is in a double-digit figure despite being the early adopter of restrictive monetary policy after the pandemic period.

A poll from Bloomberg showed that BoE Governor Andrew Bailey will announce an interest rate hike by 50 basis points (bps) to 4.0%. And, the BoE will reach to the terminal rate of 4.50% by the summer. The poll also revealed that the BoE will start cutting its key interest rate later this year to shore up a flagging economy.

Strategists at Jefferies cited “We are turning more positive on the economic prospect for Europe, but still remain negative on the UK.” For the BoE, even if we get a 50 basis point (bps) hike in February, it would be a dovish 50 basis points.”

Meanwhile, a monthly survey conducted by Citi and YouGov showed that the UK public’s inflation expectations cooled off consecutively for the second month in January. British public expectations for five to 10 years ahead fell to 3.5% in January from 3.6% in December, just short of the 3.0%-3.4% range seen ahead of the COVID-19 pandemic. For 12 months ahead, the UK public inflation expectations declined to 5.4% in January from 5.7% in the previous survey. This might provide a sigh of relief to BoE policymakers.

On the Japanese Yen front, upbeat Retail Trade (Dec) data is going to add up to the Bank of Japan (BoJ)’s target of achieving 2% inflation on a sustainable basis. The annual Retail Trade data soared to 3.8% from the consensus of 3.0% and the former release of 2.5%. While the monthly data expanded by 1.1% vs, the expectations of 0.5%. Japan’s Finance Minister Shunichi Suzuki reiterated on Tuesday that “wage increases are important to both the government and the BoJ.