British Pound finds support near weekly low as fiscal woes and rate gap weigh on Yen
The GBP/JPY cross recovers a few pips from the vicinity of the weekly trough, though it lacks follow-through buying and trades around mid-216.00s during the early European session on Thursday.
The British Pound found support near its weekly low on Thursday as fiscal concerns and rate differentials weighed heavily on the Japanese Yen. The GBP/JPY cross recovered a few pips from the weekly trough but lacked strong buying momentum, trading around the mid-216.00s during early European trading hours. Japan's fiscal position is under scrutiny due to its massive national debt and new spending plans, while the widening interest rate gap between Japan and other major economies has weakened the Yen.
The Bank of Japan (BoJ) raised its short-term policy rate to 1.00%, the highest level in 31 years, while the Bank of England (BoE) kept its benchmark rate at 3.75%, creating a significant 275-basis-point difference. This gap fuels the JPY carry trade and may continue to support the GBP/JPY cross. However, strategists at Scotiabank caution that the upcoming BoJ meeting anticipates around 20 basis points of tightening, which could lead to further strength in the Yen.
Meanwhile, traders are cautious and waiting for the release of Tokyo consumer inflation figures on Friday. The US Dollar's strength acts against the British Pound, capping the GBP/JPY cross. Gold hovered near the $4,600 mark during the first half of Thursday's European session but remained close to its weekly low.
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