The GBP/JPY exchange rate pulled back in the past two days as investors waited for the upcoming Bank of England (BoE) decision and crucial Japanese economic numbers. The pair retreated to a low of 182.95 on Tuesday, down from last Friday’s high of 184.30.
BoE interest rate aheadThe Japanese yen has been in the spotlight in the past few days as investors assessed the next actions by the Bank of Japan (BoJ). Most economists are torn between what the BoJ will do in its meeting next week and 2024.
The BoJ has embraced an unorthodox monetary policy sentiment in the past few months. Unlike other banks, it has not hiked interest rates even as inflation jumped to the highest point in years.
Instead, the bank has only changed its policy regarding its yield curve control program. It has now expanded its band of 10-year government bonds (JGBs) and allowed it to move above 1%.
The challenge for the BoJ is that the economy is not doing too well, which complicates the bets of a rate hike. The economy contracted by 2.9% in the third quarter, bigger than the expected 2.1%. Traders will watch the latest Tankan sentiment data scheduled for Wednesday.
Most economists expect the bank to leave rates unchanged in its final decision of the year next week.
The other GBP/JPY news to watch will be the latest Bank of England decision on Thursday. Like the BoJ, economists believe that the bank will leave rates unchanged now that inflation is falling at a faster pace than expected.
Economists at Goldman Sachs believe that the BoE will hold rates at the current level for the month. They see it starting to cut rates in August next year and then accelerating in the cuts later on. The BoE is also having a challenge of a slowing British economy.
GBP/JPY technical analysis
The GBP/JPY exchange rate has pulled back in the past few days. It has retreated to a low of 183.82, the highest swing on October 12th. The pair has dropped below the 50-period and 25-period Exponential Moving Averages (EMA).
Further, the Relative Strength Index (RSI) has pulled back from Friday’s high of 55.87 to 45. The Average Directional Index (ADX) has drifted downwards. Therefore, the outlook for the pair is still bullish, with the next point to watch will be 184.30.
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