- The pound/yen pair has been falling for four consecutive days, and is under pressure from a variety of factors.
- Expectations for a policy shift by the Bank of Japan continue to push the yen higher and push the cross lower.
- Expectations that the BoE will cut interest rates in 2024 are further contributing to the pound’s underperformance.
The pound/yen cross remained under strong selling pressure for the fourth day in a row on Tuesday, falling to the 184.70 area during the Asian session, close to its lowest level in more than a week set a day earlier.
Investors are now confident that the Bank of Japan (BOJ) will almost certainly end its negative interest rate policy by early next year after rising inflation, which exceeded the 2% target for the 18th straight month in September. It seems so. This is seen as a major factor in the relative outperformance of the Japanese Yen (JPY), and continues to put downward pressure on the GBP/JPY cross.
Meanwhile, the British pound (GBP) has been weighed down by expectations that the Bank of England (BoE) will begin cutting interest rates from a 15-year high in response to the risk of a looming recession. That expectation has been reaffirmed by weaker UK retail sales, which coincides with a gloomy outlook for the UK economy. This further contributes to the atmosphere surrounding the Pound/JPY cross.
The upbeat market mood, which tends to undermine demand for the traditional safe-haven yen, does little to ease bearish pressure or support spot prices. The GBP/JPY cross is currently more than 350 pips back from last week’s highest level since November 2015 around 188.25-188.30. Moreover, the lack of buying supports the prospect of further decline.
That said, we believe that the prevailing selling bias surrounding the US dollar (USD) is benefiting the pound. This could end up providing some support to the GBP/JPY cross, but the fundamentals suggest the path of least resistance is to the downside. Market participants are now looking forward to the BoE’s monetary policy report hearing on Wednesday for any meaningful stimulus.