The GBP/JPY cross has experienced a slight retreat from a recent multi-month high, although significant downside potential appears limited. Uncertainty surrounding potential rate hikes from the Bank of Japan (BoJ) may weigh down the Japanese Yen (JPY) while simultaneously providing some support to the cross. Traders are closely monitoring the upcoming UK Autumn Budget for short-term direction ahead of the BoJ’s upcoming announcement.
During the Asian trading session on Wednesday, GBP/JPY dipped slightly, retracting from the previous day’s gains which brought it close to the 199.70 level, marking a three-month peak. Nevertheless, spot prices have managed to maintain levels above 199.00, reflecting traders’ anticipation of the UK Autumn Budget for a possible catalyst that could drive movement in the currency pair.
This budget announcement will be notably the first under the newly elected Labour government, with expectations that the Chancellor of the Exchequer will propose tax increases paired with increased public spending, in line with the government’s objectives. Market participants are particularly interested in how these financial plans will impact the Bank of England’s interest rate strategy, which is likely to affect the British Pound (GBP) and, consequently, the GBP/JPY cross.
At the same time, speculation regarding potential rate cuts from the BoE in the near future, supported by a recent decrease in the UK Consumer Price Index to its lowest level since April 2021, presents challenges for the GBP. Conversely, the JPY could receive support from market expectations regarding government intervention to stabilize the currency.
Furthermore, the ruling coalition in Japan’s recent loss of a parliamentary majority has raised questions about the BoJ’s capacity to tighten monetary policy further. Coupled with a prevailing risk-on environment, this scenario may limit the JPY’s appreciation and help contain any significant declines in the GBP/JPY pair. Therefore, any further dips might be viewed as opportunities for buyers, suggesting that caution is warranted before concluding the recent price peak.
