The GBP/JPY pair sensed a decent buying interest after dropping to near the round-level resistance of 160.00. The cross is attempting to extend its recovery meaningfully above 160.50 amid rising expectations for the continuation of bulky interest rate hikes by the Bank of England (BoE) ahead.
Following the footprints of sideways GBP/USD, the GBP/JPY pair is also demonstrating rangebound oscillation. The Pound Sterling is likely to remain in the bullish territory as the BoE seems bound to tighten interest rate policy further to contain stubborn inflation.
The latest poll conducted by Reuters for BoE interest rate projections claims that 29 of 42 economists are favoring a 50 basis point (bps) interest rate hike to 4.00 on February 02 by BoE Governor Andrew Bailey. However, residual economists have favored a 25 bps interest rate hike. In the agenda of restricting inflation to 2%, the BoE has to continue hiking interest rates further as an increment in food prices has offset the impact of softening energy prices. Also, the shortage of labor has been a major concern for the United Kingdom's economy.
For further guidance, the release of the UK Producer Price Index (PPI) will remain in the spotlight. The core PPI output is seen higher at 13.9% vs. the former release of 13.3%. An occurrence of the same might trigger inflation projections further and could create more troubles for the BoE policymakers. Also, it might strengthen the odds of a bumper interest rate hike by the BoE.
Meanwhile, economists at CIBC Capital Markets are favoring strength in Japanese Yen in the second half of CY2023 considering the fact that the Bank of Japan (BoJ) might exit from negative rates and the largest foreign holding of US Treasuries by Japan would compress the interest rate spread.
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