British Pound remains on the front foot vs JPY as Mideast risks counter intervention fears
The GBP/JPY cross turns positive for the fourth straight day following an intraday dip to the 214.35-214.30 region on Thursday and draws support from a combination of factors. The British Pound (GBP) benefits from a mildly softer US Dollar (USD), which, along with the underlying bearish sentiment surrounding the Japanese Yen (JPY), continues to act as a tailwind for the currency pair.
Investors remain worried that Japan's economy will remain under strain amid the ongoing Middle East conflict and continued disruptions to energy supplies through the Strait of Hormuz. In fact, Iran announced the closure of the strategic waterway after the US launched a fresh wave of strikes across the country under orders from US President Donald Trump. This has been a key factor behind the JPY's relative underperformance and offering support to the GBP/JPY cross.
However, speculations that Japanese authorities might step in again to prop up the domestic currency hold back the JPY bears from placing aggressive bets. This, along with the divergent Bank of Japan (BoJ)-Bank of England (BoE) policy expectations, keeps the GBP/JPY cross below the 215.00 psychological mark and the weekly high set on Wednesday. Investors seem convinced that the BoJ will hike interest rates at its upcoming monetary policy meeting on June 15-16.
In contrast, traders have been scaling back their expectations for more aggressive rate hikes by the Bank of England (BoE) in reaction to softer UK consumer inflation figures and an unexpected rise in the UK Unemployment Rate. Furthermore, the UK political uncertainty, amid challenges to UK Prime Minister Keir Starmer's leadership, could act as a headwind for the GBP and contribute to capping the GBP/JPY cross, warranting caution before positioning for further gains.
Disclaimer: The content of this article solely reflects the author's opinion and does not represent the platform in any capacity. This article is not intended to serve as a reference for making investment decisions.
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Federal Reserve meeting minutes: All 19 policymakers support a rate hike in September, but reasons vary; most expect further hikes this year, suggesting no urgency in October.
Most officials view a September interest rate hike as an "insurance" measure against stubborn inflation; a minority see it as a necessary step to curb inflation. Overall, there is no indication of a desire to push for consecutive rate hikes. The "New Fed News Agency" emphasized the minutes: "Most participants believe that it may be appropriate to raise interest rates again before the end of the year." Nearly all officials believe inflation remains elevated and the labor market is close to full employment. Many noted that, despite the rise in long-term U.S. Treasury yields, financial conditions are still conducive to economic growth. Some officials believe that AI will boost investment and productivity, but may also contribute to inflation. The minutes revealed that the U.S.-Japan joint intervention in July to support the yen was a U.S. Treasury action, with no Federal Reserve funds used.
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