British Pound rebounds against Japanese Yen at the start of a UK data-packed week

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The British Pound (GBP) snaps a two-day correction against the Japanese Yen (JPY) on Monday, rebounding to near 218.60 during the European trading session. The cross faced selling pressure in the past two trading days after profit-booking near multi-year highs at 219.61.

The British Pound bounces back against the Japanese Yen after a two-day correction.
Investors brace for high volatility in the British Pound ahead of a data-packed week in the UK.
The BoJ is expected to leave interest rates unchanged in the policy meeting next week.

This week, the British currency is expected to remain highly volatile as a slew of United Kingdom (UK) economic data is scheduled to be published. In the data-pack week, investors will pay close attention to the employment data on Tuesday, Consumer Price Index (CPI) data on Wednesday, and Retail Sales and preliminary Purchasing Managers’ Index (PMI) data on Friday.

The impact of employment and inflation is expected to be significant on market expectations for the Bank of England’s (BoE) monetary policy announcement next week.

On Tuesday, the Office for National Statistics (ONS) will likely show that the ILO Unemployment Rate remained steady at 4.9%. Average Earnings Excluding Bonuses, a key measure of wage growth, is expected to have grown steadily by 3.4% Year-on-Year (YoY).

The UK core CPI – which excludes volatile components of food, energy, alcohol and tobacco – is estimated to have grown at a moderate pace of 2.5% against the previous reading of 2.6%.

Signs of inflationary pressures cooling down are likely to boost expectations of an interest rate cut by the BoE in the near term.

On the Japanese Yen front, the Bank of Japan (BoJ) is expected to leave interest rates unchanged at 1% in the policy meeting next week, according to a report from Kyodo. The report also showed that officials still see the need for back-to-back interest rate hikes in the near term.

Economic Indicator

Core Consumer Price Index (YoY)

The United Kingdom (UK) Core Consumer Price Index (CPI), released by the Office for National Statistics on a monthly basis, is a measure of consumer price inflation – the rate at which the prices of goods and services bought by households rise or fall – produced to international standards. The YoY reading compares prices in the reference month to a year earlier. Core CPI excludes the volatile components of food, energy, alcohol and tobacco. The Core CPI is a key indicator to measure inflation and changes in purchasing trends. Generally, a high reading is seen as bullish for the Pound Sterling (GBP), while a low reading is seen as bearish.

Why it matters to traders?

The Bank of England is tasked with keeping inflation, as measured by the headline Consumer Price Index (CPI) at around 2%, giving the monthly release its importance. An increase in inflation implies a quicker and sooner increase of interest rates or the reduction of bond-buying by the BOE, which means squeezing the supply of pounds. Conversely, a drop in the pace of price rises indicates looser monetary policy. A higher-than-expected result tends to be GBP bullish.

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