GBP/JPY falls below 190.50 as traders expect BoE to deliver an interest rate cut

• GBP/JPY extends its losses due to rising expectations of the BoE delivering a 25 basis points rate cut on Thursday.
• The BoE’s MPC is expected to vote 8-1 in favor of a quarter-point rate cut, bringing the rate down to 4.5%.
• The robust wage and services data in Japan has bolstered hawkish sentiment surrounding the BoJ’s rate hikes.

GBP/JPY continues to lose ground for the second consecutive day, trading around 190.40 during the early European hours on Thursday. The GBP/JPY cross struggles as the Pound Sterling (GBP) faces downward pressure amid expectations that the Bank of England (BoE) will resume its policy-easing cycle, likely lowering interest rates by 25 basis points (bps) to 4.5% at its policy meeting later in the day.

The BoE’s Monetary Policy Committee (MPC) is anticipated to vote 8-1 in favor of a quarter-point rate cut to 4.5%, with MPC member Catherine Mann, who has been an outspoken hawk, is expected to support keeping interest rates steady at 4.75%.

The inflationary pressures in the United Kingdom (UK) decelerated at a faster-than-expected pace in December. Inflation in the services sector – which is closely tracked by BoE officials – grew at a moderate pace of 4.4%, compared to 5% growth in November.

The Japanese Yen (JPY) strengthens against its peers as robust wage and services data fuel expectations of a more hawkish Bank of Japan (BoJ). Data showed that real wages in Japan increased for the second straight month in December, while nominal wage growth reached its highest level in nearly three decades.

Japan’s Finance Minister, Katsunobu Kato, told parliament on Thursday that deflation has not yet ended. Kato also noted ongoing inflationary conditions as prices continue to rise.

Société Générale’s FX analysts noted that the Japanese Yen is outperforming, while 10-year JGB yields have risen to nearly 1.30%, the highest level since April 2011. However, with the BoJ policy rate expected to peak around 1.00% over the next two years, the upside for both JPY and JGB yields remains limited.