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Asset Watch

GBP/JPY Price May Reverse Lower

Thursday, August 31, 2023

GBP/JPY price news and analysis

• The Bank of England nears the end of its rate hike cycle
• The GBP/JPY bullish trend loses momentum, key levels to monitor

 

The British Pound benefited from the Bank of England tight monetary policy and has surged against major currencies like the Japanese Yen. The BoE has pursued a consistent path of rate hikes, totaling fourteen consecutive increases to tame elevated inflation levels within the UK and it is highly likely the central bank to hike rates by 25bps towards 5.5%.
Notably, the UK inflation levels have seen a decrease due to the tight monetary policy and the decline in energy prices, dropping from 11.1% to 6.8% in the most recent reading of July. Despite this progress, these figures remain considerably distant from their target at 2%.
It is likely that the British central bank will adopt a “data dependency” policy, similar to its American and European counterparts. However, some members in the Bank of England’s monetary policy committee are of the opinion that the UK interest rates are already in a restrictive territory and continuously hiking rates may inflict unnecessary damage to the economy, suggesting that rates may stay unchanged but remain high for an extended period.

GBP/JPY Price Daily Chart

 

Chart source ADSS Platform

 

On August 22, the GBP/JPY rallied to a multi- year high at 186.65. The price retreated later as some traders took profits indicating that the bullish trend was losing momentum. It is important to note that the price may reverse course due to the bearish divergence between the price and the RSI, as the former created a high with a higher high while the latter created a high with a lower high.

Currently, the pair moves in the trading zone between 184.47 – 194.59 and may be on its way to a test of the high end of the zone. However, the resistance levels located at 187.80 and 193.38 should be kept in focus. On the other hand, a daily close below the low end of the zone may encourage some traders to press the pair even lower towards 178.95. That said, the support level residing at the 50 day moving average should be watched closely.


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