- GBP/JPY appreciates as market sentiment improves following reports of incoming Trump administration considering a gradual increase in import tariffs.
- The Japanese Yen struggles due to ongoing uncertainty regarding the timing of the BoJ’s next rate hike.
- The Pound Sterling could face challenges due to concerns over stagflation in the United Kingdom.
GBP/JPY breaks its five-day losing streak as the Pound Sterling (GBP) strengthens, driven by improved investor confidence following reports that US President-elect Donald Trump’s economic team is considering a gradual increase in import tariffs. This prospect weakens the safe-haven Japanese Yen (JPY), providing support for the risk-sensitive Pound. As a result, the GBP/JPY cross appreciates, trading around 192.30 during the Asian session on Tuesday.
On Monday, a Bloomberg report highlighted that Trump’s incoming administration is evaluating a phased approach to implementing tariffs, aiming to prevent a sharp rise in inflation while managing trade policy adjustments.
Additionally, the GBP/JPY cross appreciates as the Japanese Yen (JPY) faces pressure amid uncertainty over the timing of the Bank of Japan’s (BoJ) next rate hike. Market participants speculate that the BoJ may delay raising rates until April, awaiting confirmation of sustained wage growth during the spring negotiations.
Bank of Japan Deputy Governor Ryozo Himino stated on Tuesday that he would not directly link President Trump’s inauguration address to the BoJ’s decision on whether to raise rates in January. Himino emphasized that when the right time comes, the BoJ must adjust its policy without delay.
Regarding Trump’s address, Himino expressed the intention to closely analyze the schedule and balance of the new US administration’s policy measures and to see if any new information not previously communicated would emerge.
However, the upside of the GBP/JPY cross could be restrained as the Pound Sterling (GBP) may struggle due to concerns over stagflation in the United Kingdom (UK) amid persistent inflation and stagnant economic growth.
Additionally, a recent surge in UK government bond yields has sparked worries about the country’s fiscal health. Investors have been offloading UK gilts, driven by fears of mounting debt, sluggish growth, and inflation risks. These concerns contribute to the GBP’s relative weakness.
Pound Sterling FAQs
The Pound Sterling (GBP) is the oldest currency in the world (886 AD) and the official currency of the United Kingdom. It is the fourth most traded unit for foreign exchange (FX) in the world, accounting for 12% of all transactions, averaging $630 billion a day, according to 2022 data. Its key trading pairs are GBP/USD, also known as ‘Cable’, which accounts for 11% of FX, GBP/JPY, or the ‘Dragon’ as it is known by traders (3%), and EUR/GBP (2%). The Pound Sterling is issued by the Bank of England (BoE).
The single most important factor influencing the value of the Pound Sterling is monetary policy decided by the Bank of England. The BoE bases its decisions on whether it has achieved its primary goal of “price stability” – a steady inflation rate of around 2%. Its primary tool for achieving this is the adjustment of interest rates. When inflation is too high, the BoE will try to rein it in by raising interest rates, making it more expensive for people and businesses to access credit. This is generally positive for GBP, as higher interest rates make the UK a more attractive place for global investors to park their money. When inflation falls too low it is a sign economic growth is slowing. In this scenario, the BoE will consider lowering interest rates to cheapen credit so businesses will borrow more to invest in growth-generating projects.
Data releases gauge the health of the economy and can impact the value of the Pound Sterling. Indicators such as GDP, Manufacturing and Services PMIs, and employment can all influence the direction of the GBP. A strong economy is good for Sterling. Not only does it attract more foreign investment but it may encourage the BoE to put up interest rates, which will directly strengthen GBP. Otherwise, if economic data is weak, the Pound Sterling is likely to fall.
Another significant data release for the Pound Sterling is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought-after exports, its currency will benefit purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.
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