GBP/JPY faces selling pressure for the second day in a row, staying near this week’s low in the mid-210.00s during the Asian session. Although the pair is close to its highest point since August 2008, reached on Monday, caution is needed before expecting a drop. The Japanese Yen has gained slightly after the Bank of Japan’s minutes from their October meeting revealed a consensus on possible rate hikes when economic forecasts align. In December, the BoJ raised rates to 0.75%, marking a 30-year high, and there is still a chance for more hikes amid ongoing geopolitical tensions, which helps the Yen’s appeal as a safe haven.

British Pound Benefits From BOE Rate Cut

The British Pound is benefiting from the Bank of England’s recent hawkish rate cut, which was passed by a narrow 5-4 vote to lower rates by 25 basis points to 3.75%. Differences within the Monetary Policy Committee, along with last week’s unexpected inflation data, have led to a reevaluation of expectations for sharp rate cuts next year, providing support for the GBP. Future movements of JPY and GBP/JPY will depend on a speech from BoJ Governor Kazuo Ueda and the release of Japan’s Tokyo CPI and other key macroeconomic data on Friday. The currency heat map shows the JPY’s strength, especially against the US Dollar, with specific percentage changes for various currencies. With GBP/JPY pulling back to the mid-210.00s, a crucial tug-of-war is developing. The Bank of Japan recently raised rates to 0.75%, its highest in 30 years, supported by November’s core CPI data at 2.8%, which has stayed above the BoJ’s 2% target for 19 months. Meanwhile, the British Pound is finding stability as the Bank of England’s rate cut last week was not entirely decisive. The closely contested 5-4 vote for the rate cut to 3.75% followed November’s UK inflation unexpectedly rising to 3.1%, causing concerns about the pace of future cuts. This suggests the BoE may pause its easing cycle in early 2026, providing solid support for the Pound.

Potential Risks and Trading Strategies

It’s important to remember the significant price swings this pair saw in previous years, especially in 2022 and 2023, when policy differences were pronounced. Now that the policy gap is closing, with the BoJ tightening and the BoE easing, the strong uptrend might be slowing down. The situation is complicated by safe-haven flows into the Yen due to ongoing trade tensions. As we approach the end of the year, trading volumes are low, which can amplify price movements based on news. With BoJ Governor Ueda speaking tomorrow and crucial Tokyo inflation data due on Friday, uncertainty is high. Holding outright short positions could be risky, as any dovish signals might lead to a sharp rebound. For the upcoming weeks, using options could be a wise approach. Buying GBP/JPY put options may be an effective way to prepare for a potential decline if Japanese data comes in strong, while also limiting risk if the Pound unexpectedly strengthens. This strategy allows us to navigate the year-end fluctuations without being fully exposed to sudden changes. Create your live VT Markets account and start trading now.

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