BoE policy decision in focus as British Pound weakens against Japanese Yen

• 212.93 in focus as GBP/JPY retreats. The British Pound faces modest selling ahead of the BoE policy decision.
• A 25 bps interest rate increase to 4% is widely expected from the BoE.
• The BoE’s guidance on the interest rate outlook is likely to draw greater investor attention.

A 0.16% decline leaves the British Pound (GBP) near 212.93 against the Japanese Yen (JPY). During Thursday’s European session, caution ahead of the Bank of England’s (BoE) monetary policy announcement at 12:00 GMT is weighing on the cross.

25bps BoE hike expected to open tightening cycle as UK data strengthens

Thursday’s BoE decision and the accompanying Monetary Policy Report are in focus for Brown Brothers Harriman (BBH) strategists. They describe the central bank as “widely expected to start tightening with a 25bps hike to 4.00% after standing pat all year.” In their assessment, “firmer UK inflation and economic activity back the move,” with the vote split “seen at 7-2 with doves Alan Taylor and Swati Dhingra supporting a hold,” highlighting that some policymakers remain unconvinced that a new tightening phase is needed.

Guidance on the interest rate outlook is likely to command greater attention from investors, as financial markets appear confident that the BoE will begin a monetary tightening cycle.

Pound faces risk from any BoE signal of a slower rate path

The tone of the BoE’s forthcoming communication may challenge the Pound’s recent resilience, according to analysts at Societe Generale. Their warning is that “if the BoE’s guidance on Thursday shows any hesitation about how much further they need to go, the pound could start looking vulnerable,” although they believe “it is probably too early for them to give the appearance of slowing down.”

In Japan, the extent of further interest rate increases by the Bank of Japan (BoJ) during the current monetary tightening cycle remains the focus as investors await fresh signals.

Friday brings September’s Labor Cash Earnings data, a key gauge of wage growth and the next focus for investors. The reading is expected to hold at 3.8% year-on-year (YoY).