GBP/JPY is trading slightly lower on Friday near 191.00, as shifting interest rate expectations in the UK and Japan diminish the appeal of holding Pound Sterling (GBP) assets relative to the Japanese Yen (JPY).
UK: Easing Inflation, Rate Cut Expectations
Easing inflation expectations in the UK have fueled speculation that the Bank of England (BoE) could cut interest rates in June. Lower interest rates typically reduce foreign capital inflows, putting downward pressure on the currency. Recent weak Services PMI data for March further solidified expectations for a rate cut.
Japan: Rising Inflation, Hints of Further Rate Hikes
In contrast, the Bank of Japan recently raised interest rates from an exceptionally low level of -0.1%. In a recent interview, BoJ Governor Ueda signaled potential for further rate hikes given accelerating inflation. This could strengthen the Yen over time.
BoE vs. BoJ Outlooks
The latest BoE Decision Maker Panel (DMP) survey signals cooling selling price and wage inflation expectations. BoE Governor Andrew Bailey also indicated market expectations for two or three rate cuts this year are “reasonable”.
Positive Signs in UK Housing Market
Data from Nationwide, the UK’s largest building society, showed a surprise rise in house prices, the first since January 2023. Additionally, February’s BoE lending data showed an unexpected increase in mortgage approvals. These signs offer some support to the Pound Sterling.
