British Pound sits near two-month top, around 212.00 vs Yen as bulls await BoE on Thursday

The GBP/JPY cross trades near a two-month high during the early European session on Tuesday, with bulls awaiting sustained strength and acceptance above the 212.00 mark before positioning for further gains.

The British Pound (GBP) continues with its relative outperformance amid easing fiscal concerns following the recent UK budget updates. Apart from this, the growing acceptance that the Bank of England (BoE) will hike interest rates on Thursday turns out to be another factor supporting the GBP. In contrast, the Japanese Yen (JPY) remains under pressure amid the uncertainty over the likely timing of the next rate hike by the Bank of Japan (BoJ). This leaves a wide interest rate gap between the UK and Japan, acting as a tailwind for the GBP/JPY cross.

Pound support underpinned as UK Autumn Budget leaves BoE expectations intact

Strategists at DBS highlight the relative resilience of the Pound, noting that the October 28 UK Autumn Budget "did not unsettle the gilt market and market pricing for an interest rate hike at the November 5 Bank of England meeting." Against this backdrop, DBS expects a firmer hawkish tilt from policymakers, arguing that, following the "6-3 vote supporting the September 17 pause, the vote split will likely be 7-2 this Thursday, with more MPC members acknowledging growing inflation risks." This anticipated shift in the BoE’s voting dynamics is seen as reinforcing GBP’s appeal versus the Euro.

Meanwhile, traders remain on high amid speculation that Japanese authorities will step in again to prop up the domestic currency. In fact, Japan's Finance Minister Satsuki Katayama said on Monday that the joint FX statement with the US persists and that the government is prepared to act to curb excessive or disorderly JPY weakness. This might hold back traders from placing aggressive bets and cap the GBP/JPY cross as the market focus remains glued to the key central bank event – the highly anticipated BoE monetary policy decision on Thursday.

Nevertheless, the aforementioned fundamental backdrop seems tilted in favor of bulls, suggesting that any corrective pullback is more likely to be bought into and remain limited. Meanwhile, strong follow-through buying is needed to reaffirm the near-term positive outlook and pave the way for an extension of the GBP/JPY pair's recent move higher witnessed over the past month or so.