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Asset Watch
Wednesday, 5 February 2025
This week, markets await the Bank of England’s (BoE) Monetary Policy Committee meeting, where a 25-basis-point rate cut is expected. The BoE began lowering interest rates last year with a 50-basis-point cut and is likely to continue reductions this year, aiming for a neutral range of 2% to 3%, a level that neither stimulates nor hinders economic growth.
Similarly, major central banks, including the European Central Bank (ECB) and the Federal Reserve (Fed), have been cutting rates. The ECB has reduced rates by 100 basis points since last year and continues its easing cycle, with another 25-basis-point cut last week and further reductions expected this year. The Federal Reserve cut rates by 100 basis points in 2024 but has paused further cuts due to strong U.S. economic performance, particularly in the labour market and stable inflation near its 2% target.
In contrast, the Bank of Japan (BoJ) has shifted to a tightening policy, raising interest rates by 25 basis points in its last meeting and signaling further hikes this year. This has strengthened the yen against the pound.
The BoE’s rate-cut decisions depend on inflation trends, which remain near the 2% target. The central bank may continue easing, with three to four rate cuts expected this year (totaling 0.75%–1%), provided inflation—especially core inflation (excluding energy and food)—continues to decline. The BoE is closely watching services inflation, which needs to ease further for sustained rate reductions.
On January 7, GBP/JPY broke its uptrend, then closed below the 50-day simple moving average and started a downward trend, marked by lower highs and lower lows. The pair is currently trading within the 194.60–188.92 range and appears to be heading towards the lower end of this zone.
A daily close below 188.92 would suggest strong downward momentum, with a potential decline to 186.76.
If GBP/JPY closes above 194.60, signals a weakening downtrend, possibly attracting bullish traders and pushing prices toward 198.16. However, the resistance level at 196.89 should be closely monitored.
Chart Source: ADSS Platform
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