Key Moments
- GBP/JPY trades near its intraday low around 215.70 following the release of UK July CPI figures.
- UK headline CPI rises to 2.9% YoY in July, in line with expectations, while core CPI holds at 2.6% YoY rather than easing.
- JPY outperforms major peers as markets price in a potential 25 bps Bank of Japan rate hike to 1.25% at the September meeting.
GBP/JPY Edges Lower After UK CPI Print
The British Pound (GBP) is showing only muted movement against the Japanese Yen (JPY), trading close to the day’s low near 215.70 after the publication of the United Kingdom (UK) Consumer Price Index (CPI) data for July.
According to the Office for National Statistics (ONS), headline inflation accelerated to 2.9% year-on-year (YoY), matching market forecasts and rising from 2.5% in June. Core CPI – which excludes food, energy, alcohol and tobacco – increased by 2.6% YoY, maintaining the previous pace and defying expectations for a slowdown to 2.5%.
On a month-on-month basis, headline CPI came in at 0.3% as expected, above the prior reading of 0.1%.
The re-acceleration in headline inflation after June’s moderation signals that UK price pressures remain a concern, potentially prompting investors to revisit their expectations for Bank of England (BoE) policy. At present, financial markets are anticipating that the BoE will keep interest rates unchanged for the entire year.
Labor Market and Wage Dynamics Seen Supporting BoE Pause
UK wage and employment trends are also shaping rate expectations. TD Securities assesses that the domestic labor market is likely to “continue along the steady but lacklustre path seen since the start of the year,” with June expected to show a “100k change in employment on a 3m/3m basis (mkt: 120k; prior: 148k).”
On earnings, TD Securities projects “a fair drop in the headline average weekly earnings growth measure to 4.0% 3m/y (mkt: 4.0%) from 4.3% in May, as March’s outsized bonus figures fall out of scope and reverse the upward pressures seen in the past three months.”
The firm also expects that “ex-bonus wage growth should remain at 3.4% 3m/y (mkt: 3.4%) while private earnings ex-bonus growth is set to dip to 2.7% 3m/y (mkt: 2.8%; prior: 2.9%).” TD Securities highlights that “the latter two measures sit within reach of levels consistent with the BoE’s inflation target,” which is “likely reassuring the majority of the MPC that labour market dynamics are limiting second-round inflation pressures and supporting a majority vote to keep Bank Rate on hold.”
JPY Strengthens as Markets Look to BoJ September Decision
The Japanese Yen is outperforming most major currencies on Wednesday after two weeks of relative weakness. This shift comes as investors express confidence that the Bank of Japan (BoJ) will deliver a 25 basis point (bps) rate hike to 1.25% at its September policy meeting.
Japanese Yen Performance Against Major Currencies
The following table shows the percentage change in the Japanese Yen (JPY) versus key currencies today. The data indicate that JPY has gained the most against the Australian Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.13% | -0.08% | -0.24% | -0.15% | 0.28% | 0.08% | -0.16% | |
| EUR | 0.13% | 0.04% | -0.13% | -0.00% | 0.40% | 0.19% | -0.03% | |
| GBP | 0.08% | -0.04% | -0.15% | -0.04% | 0.38% | 0.16% | -0.09% | |
| JPY | 0.24% | 0.13% | 0.15% | 0.10% | 0.51% | 0.31% | 0.06% | |
| CAD | 0.15% | 0.00% | 0.04% | -0.10% | 0.41% | 0.20% | -0.04% | |
| AUD | -0.28% | -0.40% | -0.38% | -0.51% | -0.41% | -0.20% | -0.43% | |
| NZD | -0.08% | -0.19% | -0.16% | -0.31% | -0.20% | 0.20% | -0.23% | |
| CHF | 0.16% | 0.03% | 0.09% | -0.06% | 0.04% | 0.43% | 0.23% |
The heat map represents percentage changes between major currencies. The base currency is taken from the left-hand column and the quote currency from the top row. For instance, selecting the Japanese Yen as the base currency on the left and moving horizontally to the US Dollar column shows the JPY (base)/USD (quote) percentage move in that cell.
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