GBP/JPY Price may Correct Its Upward Trend

Expectations of Higher UK Taxes

Government borrowing levels have risen sharply, exceeding forecasts by nearly £7 billion, signaling a wider fiscal deficit that has forced the government to increase borrowing. The rising cost of managing public debt remains one of the major challenges facing the UK government ahead of its Autumn Budget next month. This comes in addition to elevated inflation, and growing government expenditures, including public sector wages.

Among the potential measures the government may consider in this situation are raising existing taxes or introducing new ones, such as higher taxes on bank profits and wealthier individuals.

Bank of England’s Monetary Policy

Monetary policymakers are currently focused on the upcoming inflation data, as the UK Consumer Price Index for September is scheduled for release tomorrow. According to expectations, the YoY headline annual inflation is projected to rise from 3.8% to 4.0%, driven mainly by higher service and food costs.

However, inflation is expected to gradually return to the 2% target in the medium term, supported by easing wage growth, declining energy prices, and potentially higher taxes, which would reduce purchasing power and consumer demand. A decline in inflation would give the Bank of England room to continue cutting interest rates, a move that could weigh on the British pound against major currencies.

That said, the BoE is unlikely to cut interest rates at its November meeting. However, if the September inflation data come in lower than expected, this could leave the door open for one rate cut of 25 bp before year-end, provided inflation continues to decline in October and November.

Conversely, if inflation remains stable at current levels or rises, it will likely delay the BoE’s easing cycle, prompting policymakers to adopt a more cautious approach. This scenario could support the pound’s exchange rate in the near term.

GBP/JPY Price – Technical Outlook

On October 8, the GBP/JPY reached its highest level in over a year before retreating as some traders excited the market to take profits. At present, prices are trading within the zone located between 203.48 and 198.66, having failed multiple times to break above the high end more than once. This suggests waning bullish momentum and potential for further profit-taking, possibly driving the pair to test the low end of the range.

A daily close below 198.66 would signal the start of a sideways movement, potentially leading the pair to decline toward 193.39. In this scenario, the support levels at 196.92 and 194.99 should be closely monitored.

Levels to Watch in the Opposite Scenario

If the daily candlestick closes above 203.48, this suggests a stronger bullish momentum and may push prices higher toward 208.01. In this case, the resistance level at 204.81 should be watched carefully.

GBP/JPY – Daily Price Chart

Chart Source: ADSS Platform