The Pound to Japanese Yen (GBP JPY) exchange rate spiked on Tuesday following the release of impressive inflation figures from the UK.
GBP JPY currently sits around 140.20 following the release of the inflation data, up from around 139.18 at the start of the day’s session.
Pound (GBP) Skyrockets After CPI Figures
The Pound jumped against the Japanese Yen this morning following the release of a better than expected Consumer Price Index.
The CPI data, compiled by the Office for National Statistics (ONS), reported that the
UK’s inflation rate surged from 1.8% to 2.3% in February
, outpacing initial forecasts of a 0.3% rise and reaching its highest levels since September 2013.
This propelled Sterling sentiment skyward as inflation surpassed the Bank of England’s (BoE) target rate of 2.0%, prompting speculation that the bank will soon move to raise interest rates in order to keep inflationary pressures under control.
However, many economists do not expect the BoE to tighten interest rates for the foreseeable future as they prepare for the uncertainty of Brexit.
Philip Shaw, economist at Investec said;
‘We remain sceptical of a hike this year, and are not fully pricing in a tightening until the second half of 2018. We continue to believe that the first move will not occur until 2019, but figures on growth and pay will be as important as inflation in determining the timing.’
With wages in the UK only showing anaemic growth there are also fears that the rapid acceleration of inflation will place considerable pressure on consumer spending.
Japanese Yen (JPY) Sentiment Suffers Following Remarks from BOJ’s Iwata
The Japanese Yen found little positive momentum on Tuesday as the Bank of Japan’s (BOJ) Deputy Governor Kikuo Iwata commented on the Bank’s struggle to reach its 2% inflation target and denied that the BOJ was relying on a weaker Yen to shift consumer price pressures.
Speaking to Reuters Iwata said;
‘We’re trying to achieve inflation accompanied by a rise in wages and productivity. You can’t simply say that the weaker the yen is the better for the economy, because there are some negative aspects of having a weak currency.’
The correlation between monetary policies and currency movement has become a sensitive issue in Japan after claims by Donald Trump that the country was manipulating its currency in order to gain a trade advantage.
GBP/JPY Exchange Rate Forecast: UK Retail Sales Ahead
The GBP JPY exchange rate may advance further on Thursday with the release of the UK’s latest retail figures as sales are expected to have grown 0.4% last month after a shock -0.2% contraction in January.
Meanwhile, the Japanese Yen may rally overnight on Tuesday as economists forecast that trade balance will post a ¥822bn surplus in February after an unexpected ¥1087bn deficit at the start of the year.
Looking further ahead, the Pound is likely to cede much of its recent gains over the coming weeks as markets brace for the UK’s exit from the EU, with the official Brexit process set to begin next week as Prime Minister Theresa May invokes Article 50 on Wednesday 29
th
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