GBP/JPY price – Breakout or Pullback?

Sharp division at the Bank of England

Members of the Bank of England’s Monetary Policy Committee are preparing to vote on the U.K. interest rate decision, which will be announced tomorrow. At the previous meeting, the Bank left interest rates unchanged by a narrow one-vote margin, with five members voting to hold rates and four voting in favor of a cut. The key question now is what factors could prompt a shift in members’ views toward reducing rates from 4.00% to 3.75%?

On one side, four members favor a rate cut due to the slowdown in the U.K. labor market and wage growth. On the other, four members oppose a cut to contain elevated inflation, particularly inflation driven by food prices and the services sector, which remains high. The decisive vote is expected to come from the Bank of England Governor, Andrew Bailey, with markets anticipating that he will vote in favor of a 25-basis-point rate cut at the December meeting. As a result, markets have priced in a nearly 90% probability of a rate cut.

Key factors that could drive Governor Bailey toward supporting a rate cut include the decline in inflation from 3.8% to 3.6% in October, alongside the government’s recent budget. While the budget included some tax relief on energy bills, it also introduced tax increases of £26 billion, which could restrain consumer spending and contribute to further disinflation. The most important reason behind market conviction that Governor Bailey will vote for a cut is the dovish tone he displayed in the minutes of the previous meeting. Therefore, a decision to keep rates unchanged at this meeting would be considered a surprise and could trigger a rally in the British pound.

Potential rate hike from the Bank of Japan

Markets are also awaiting the Bank of Japan’s interest rate decision later this week, which could include a 25-basis-point hike from 0.50% to 0.75%. Attention will be focused on the Bank of Japan Governor’s comments regarding the forward guidance of Japanese monetary policy, which is not expected to signal further rate hikes, at least during the first quarter of next year. It is worth noting that the Bank of Japan estimates the neutral interest rate (which neither stimulates nor restricts economic growth ) to be between 1.00% and 1.25%. Any indication that additional tightening could occur before the end of the first half of next year would likely support the Japanese yen against major currencies.

GBP/JPY – Technical Analysis

On November 7, the pair closed above the 50-day simple moving average and subsequently entered an uptrend, forming higher highs and higher lows.
Currently, price is testing the high end of the current trading zone located between 203.48 and 208.01. A daily close above the high end would signal strong bullish momentum and could open the door for a move toward 211.26. In this scenario, close attention should be paid to the psychological resistance level at 210.00.

Key levels to watch in the alternative scenario

Failure to achieve a daily close above 208.01 would indicate weakening bullish momentum and could prompt some traders to exit long positions, potentially pushing price back toward the low end of the trading zone at 203.48. In this case, the 50-day simple moving average should be closely monitored as a key support level.

GBP/JPY – Daily Price Chart

Chart Source: ADSS Platform