Expectations of a Bank of England rate cut weigh on the pound, with GBP/JPY maintaining a volatile trend.
2025-08-06 15:00:14
GBP/JPY came under pressure around 196.50 during Asian trading hours, failing to extend the previous session's rebound from a seven-week low. Caution was maintained ahead of the Bank of England's (BoE) upcoming interest rate decision, limiting the exchange rate's volatility.
The market generally expects the Bank of England to cut interest rates by 25 basis points to 4.00% on Thursday to address issues such as a weak labor market and slowing wage growth. However, as inflation remains above target, the Bank of England may maintain a "cautious dovish" tone, which will have an uncertain impact on the pound.
According to market research, job vacancies in the UK have recently decreased and wage growth has fallen faster than the Bank of England expected in May.
"Despite a slowdown in the labor market, inflation is currently sticky and monetary policy space is limited," said a former senior economic adviser to the Bank of England.
In sharp contrast, the Bank of Japan (BOJ) raised its inflation forecast at its meeting last month and hinted that it would consider further interest rate hikes this year if economic and price trends meet expectations. This divergence in policy expectations has curbed the rebound momentum of GBP/JPY.
From a technical perspective, GBP/JPY fell below the key 50-day moving average support last week, indicating a short-term downward trend. Currently, the price remains above the 196.00 mark and is fluctuating and consolidating. If it breaks below this level, it may further test the previous low of 194.80.
On the other hand, if the Bank of England's statement is not as dovish as market expectations, the exchange rate may rebound to the initial resistance around 197.50.
Editor's opinion:
The current GBP/JPY trend is driven by diverging policy expectations between the two central banks. In the short term, market sentiment will be influenced by the Bank of England's interest rate decision and its language. If the BOE sends a stronger easing signal and the Bank of Japan continues to hint at a rate hike this year, the GBP/JPY pair could face greater downward pressure.
The market generally expects the Bank of England to cut interest rates by 25 basis points to 4.00% on Thursday to address issues such as a weak labor market and slowing wage growth. However, as inflation remains above target, the Bank of England may maintain a "cautious dovish" tone, which will have an uncertain impact on the pound.
According to market research, job vacancies in the UK have recently decreased and wage growth has fallen faster than the Bank of England expected in May.
"Despite a slowdown in the labor market, inflation is currently sticky and monetary policy space is limited," said a former senior economic adviser to the Bank of England.
In sharp contrast, the Bank of Japan (BOJ) raised its inflation forecast at its meeting last month and hinted that it would consider further interest rate hikes this year if economic and price trends meet expectations. This divergence in policy expectations has curbed the rebound momentum of GBP/JPY.
From a technical perspective, GBP/JPY fell below the key 50-day moving average support last week, indicating a short-term downward trend. Currently, the price remains above the 196.00 mark and is fluctuating and consolidating. If it breaks below this level, it may further test the previous low of 194.80.
On the other hand, if the Bank of England's statement is not as dovish as market expectations, the exchange rate may rebound to the initial resistance around 197.50.
Editor's opinion:
The current GBP/JPY trend is driven by diverging policy expectations between the two central banks. In the short term, market sentiment will be influenced by the Bank of England's interest rate decision and its language. If the BOE sends a stronger easing signal and the Bank of Japan continues to hint at a rate hike this year, the GBP/JPY pair could face greater downward pressure.
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