Surprisingly Hawkish BoE Comments Send GBP/JPY Higher

After falling earlier in the week, the Pound to Japanese Yen exchange rate recovered on Wednesday due to surprisingly hawkish comments from Bank of England (BoE) chief economist Andy Haldane. GBP/JPY still remains below the week’s opening levels at around 141.30, but has recovered from the week’s low-point of 139.88.

Pound (GBP) Recovers on Hawkish Haldane

The Bank of England (BoE) has maintained its hold over the Pound this week. Earlier in the week it was BoE Governor Mark Carney who caused a Pound selloff after stating Britain was not ready for higher interest rates due to the risks of the Brexit process.

Then on Wednesday BoE chief economist Andy Haldane made a speech that heavily contrasted Carney’s with its unexpectedly hawkish tone. Haldane is typically more dovish.

Haldane argued that as UK inflation continued surging, the bank may be pressured into hiking UK interest rates sooner than markets expected.

He argued that if British data remained on track, withdrawing and pulling back some of the stimulus policies introduced last August may be necessary later in the year.

This led to an increase in Pound demand on Wednesday. However, uncertainty about Britain’s political situation as well as market doubts that other policymakers would join Haldane’s hawkish stance limited its gains.

Japanese Yen (JPY) Slips as BoJ Minutes Take Familiar Tone

While demand for the Yen’s rival, the US Dollar, is heightened due to Fed rate hike bets, the Bank of Japan (BoJ) lent the Yen no support as it took an all too familiar tone in its latest meeting minutes report.

The BoJ once again stuck to the status quo in April’s meeting minutes, showing no indication that any changes were on the way to the bank’s ultra-loose monetary policy.

This week’s Japanese data has been underwhelming too. Monday’s trade balance printed a deficit of ¥-203B as imports came in well above expectations and exports didn’t increase as much as expected.

GBP/JPY Forecast: UK Political Developments in Focus

Uncertainty remains a big weight on Pound movement this week. Sterling’s recovery has been limited due to concerns about how Britain’s minority Conservative government will proceed.

Speculation continues to mount that the Conservatives may not be able to reach a deal with Northern Ireland’s Democratic Unionist Party (DUP) and critics continue to call for UK Prime Minister Theresa May to step down.

The latest mutterings indicate that no deal between the Tories and DUP will be made this week which will mean extended pressure for Pound trade as uncertainty persists.

The Pound may be able to recover further against the Japanese Yen however, especially if the US Dollar remains strong. Stronger US Dollar demand typically means a weaker Yen.

Josh Jeffery

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