GBP/JPY pulled back after touching the 200-day Simple Moving Average (SMA) despite the release of better-than-expected data from the UK. The BoE is still expected to make rate cuts in2024, while the Yen gained strength from positive GDP data and expectations of more rate hikes from the BoJ. Despite positive data out of the UK, GBP/JPY paused in its recovery rally and pulled back almost half a percent on Friday.
The UK data showing a rise in Retail Sales in July and flat GDP in June failed to impact UK 10-year Gilts which remained at 3.9%, indicating little change in inflation expectations. Data also showed Industrial and Manufacturing Production beat expectations in June, but the Pound weakened against the Japanese Yen. The Japanese Yen may be holding up due to technical selling at the 200-day SMA level and better-than-expected Japanese GDP data, showing growth of 0.8% in Q2.
The lack of upside in Sterling following the positive UK data may be due to little change in the monetary policy outlook. Analysts still expect the BoE to cut interest rates in 2024 as inflation eases, likely having a negative effect on GBP and GBP/JPY. Societe Generale and Capital Economics also predict multiple cuts to UK interest rates in the second half of 2024, leading to a weaker Pound. Capital Economics expects 10-year Gilt yields to fall to 3.50% by the end of 2024 and the Pound to weaken to 1.25 by year-end.
In contrast, the BoJ is expected to hike interest rates one more time before the end of 2024 due to stronger-than-expected GDP data and hawkish comments from the bank. The BoJ recently raised interest rates to 0.25% from the 0.0% to 0.10% range it was previously in, indicating a more hawkish stance. This expectation of further rate hikes from the BoJ poses a headwind for GBP/JPY as it attempts to recover from recent lows.
Overall, the outlook for UK and Japanese monetary policy suggests a divergence, with the BoE expected to cut rates and the BoJ expected to raise them, impacting the GBP/JPY pair. The market response to positive UK data was muted, reflecting ongoing concerns about inflation and interest rates in the UK. This uncertainty, combined with the positive outlook for the Japanese economy, may continue to weigh on GBP/JPY as it navigates through the challenging economic landscape.考
In conclusion, GBP/JPY faces headwinds despite positive UK data, as analysts expect the BoE to cut rates further in 2024, while the BoJ is anticipated to hike rates. This divergence in monetary policy outlooks between the UK and Japan is likely to impact GBP/JPY, creating challenges for the currency pair as it attempts to recover from recent lows. Investors will closely monitor central bank decisions and economic data releases in both countries to assess the potential impact on GBP/JPY going forward.
