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GBP/JPY slips below 218 as BoJ faster hike bets lift yen
The move came after UK inflation data missed expectations and investors kept pricing a 0.25% Bank of England hike by September.
GBP/JPY eased in early European trading, slipping below 218.00 amid mild pressure on sterling following mixed UK inflation figures, according to FXStreet.
The UK Office for National Statistics reported headline CPI rose 2.6% year over year in June, below expectations for a deceleration to 2.7% from 2.8% the prior month, while core CPI rose 2.6% versus a forecast of 2.5%. FXStreet said the data tempered hopes for a Bank of England rate hike and weighed on GBP.
Meanwhile, the Japanese yen received a small boost after a Bloomberg report indicated Bank of Japan officials are open to raising rates faster, with speculation about potential Japanese support for the currency prompting short covering. FXStreet also noted that markets appear to have fully priced a 0.25% BoE rate increase by September, with a second hike expected by the end of 2026 to take the official rate to 4.25%, versus Japan’s short term policy rate at 1.0%.
FXStreet added that the resulting wide interest rate differential continues to support JPY carry trade flows and remains a tailwind for GBP/JPY, while investors also watch economic risk from the US-Iran standoff over the Strait of Hormuz, a route Japan depends on for more than 90% of its oil imports.