GBPJPY has broken out of a longstanding range in recent weeks but may be at risk after an inflation drop in the UK.
GBPJPY: Weekly Chart
GBPJPY is trading at 180, but it moved above there with the breakout, and recent bearishness could test the uptrend line.
The British pound fell as the UK inflation rate fell to March 2022 lows. The drop in inflation to 7.9% will ease some of the recent criticism against the Bank of England and could lead to a pause in its rate hike strategy.
The core inflation rate dropped to 6.9%, giving hope that consumers will start to reemerge from a fearful slumber. The Office for National Statistics (ONS) reported a 15-month low in inflation after a bad run where figures hit a 41-year high of 11.1% in October last year.
The Bank of England will be relieved that the trend is now lower and traders are scaling back their bets on further rate hikes. Japan has not touched its own interest rates, and that gap was set to widen with a resulting gain in the currency rate.
Producer price inflation, which shows inflation earlier in the pipeline, is also slowing, with the cost of fuel and raw materials dropping by 2.7% in the year to June, while the cost of goods leaving factories rose only 0.1%.
Prime Minister Rishi Sunak wanted to see inflation cut in half this year when it was running at 10%. If it continues to get closer to that level and further on the road to the BoE’s 2% target, then the British pound could see a strong pullback. That would start with a close below the uptrend line of the price channel.
