The British Pound (GBP) has pulled back against the Japanese Yen (JPY) after not breaking through the 200.00 level. Despite higher-than-expected UK inflation and good retail sales data, GBP/JPY fell by 0.60% to around 198.00. UK Consumer Price Index (CPI) data showed a 3.6% yearly increase in June, with Core CPI at 3.7%, both exceeding predictions. Along with a rise in the Retail Price Index to 4.4%, this highlights high inflation. As a result, the Bank of England (BoE) may delay any potential interest rate cuts.

GBP/JPY Technical Analysis

GBP/JPY is still in an upward trend and above important moving averages. Resistance is being tested at 199.83, close to the psychological barrier of 200.00. Recent price movements suggest possible short-term pullbacks, with support around 198.11 and the 20-day simple moving average (SMA) at 197.94. The Relative Strength Index (RSI) is near 56, indicating neutral to slightly bullish momentum. For further gains, the price needs to close above the 199.83–200.00 range, while a drop below 197.90 could lead to a decline toward 195.90. The BoE’s monetary policy aims to keep inflation stable through interest rate changes. Quantitative easing involves printing money to buy bonds, which weakens the Pound, while quantitative tightening strengthens it by stopping bond purchases. The failure of the currency pair to break the 200.00 level is seen as a significant pause in its upward trend. While the overall structure remains positive, this rejection shows uncertainty among traders at an important historical point. The market seems to balance strong past performance against potential challenges ahead.

Impact of UK Inflation and Interest Rates

While UK inflation has been high, the latest official data shows CPI inflation dropped to the Bank of England’s target of 2.0% in June for the first time in nearly three years. This has significantly boosted market expectations for an interest rate cut as early as August, with over a 70% probability priced in. This weakens the outlook for ongoing strength in the Sterling. Given the stall at a key technical and psychological level, we suggest that traders consider strategies that benefit from increased volatility. Buying option straddles around the current 198.00 level would allow traders to profit from a big price swing in either direction, preparing for a strong breakout above 200.00 or a sharp reversal toward the 195.90 support. The 200.00 mark is more than just a round figure; it is a price point that has not been consistently held since the 2008 financial crisis, making it a significant resistance level. Conversely, there is rising speculation that Japanese authorities may step in to support their currency, especially as the yield on 10-year Japanese government bonds recently reached a peak not seen in over a decade. This potential intervention poses a risk of sudden and significant appreciation of the JPY. Reports from the Commitment of Traders show that speculative net short positions against the yen are near historic highs, indicating a very crowded trade. This presents a considerable risk; any trigger could cause a rapid unwinding of these positions, leading to a sharp drop in this currency pair. Therefore, we recommend exercising caution regarding aggressive new long positions until a clear break above resistance is confirmed with strong volume. Create your live VT Markets account and start trading now.

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