The GBP/JPY currency pair remained in positive territory for the fourth consecutive day, trading near 192.00 during the European session on Wednesday. However, the upside potential for the pair appears to be limited as the Pound Sterling (GBP) faces mounting pressure following the release of labor market data from the United Kingdom on Tuesday.
The ILO Unemployment Rate unexpectedly climbed to 4.4%, accompanied by a sharp decline in payroll numbers—the largest drop since November 2020—suggesting potential weakness in the UK labor market. In response to the data, analysts at Nomura stated that this labor report gives the Bank of England (BoE) a “green light” to implement a rate cut in February. Markets are anticipating one or two more cuts beyond February.
Furthermore, last week’s data revealed an unexpected slowdown in inflation and weaker-than-expected economic growth. As a result, the BoE is widely expected to reduce the key interest rate by 25 basis points to 4.5% at its policy meeting on February 6.
In addition to these pressures on the GBP, the Japanese Yen (JPY) could see strength as market expectations grow for a potential interest rate hike by the Bank of Japan (BoJ) later this week. Hawkish remarks from BoJ officials, combined with growing optimism over rising wages helping Japan achieve its 2% inflation target, have fueled speculation of a rate hike on Friday.
Tomoko Yoshino, head of Japan’s largest trade union, Rengo, echoed the BoJ’s views, affirming the momentum for wage increases. The BoJ has consistently emphasized that sustained and widespread wage growth is a crucial factor for any increase in short-term interest rates.
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