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GBP/JPY eases after UK, Japanese (inflation) data

Today's volatility should come after the FOMC decision, however, sentiment seems bearish after Tuesday's US CPI data.

The Pound-Yen cross declined during the London session on Wednesday and tagged stop-losses below the important short-term support, only to return above it shortly after. 

British inflation slows

The annualized Consumer Prices Index (CPI) for the United Kingdom came in at 10.7% in November, down from 11.1% in October and below expectations of 10.9%, the UK Office of National Statistics (ONS) announced on Wednesday. The CPI index has finally declined from its highest level since November 1981.

The core inflation index (excluding volatile food and energy categories) increased 6.3% year-over-year in November compared to 6.5% in October, below expectations of 6.5%.

You may also read: Markets invite gains as inflation slows down

The monthly data revealed that consumer prices in the United Kingdom increased by 0.4% in November, compared to 0.6% expected and 2.0% before. The United Kingdom’s Retail Price Index for November came in at 0.6% MoM and 14.0% YoY, exceeding expectations across the board.

“The largest downward contribution to the change in the CPIH and CPI annual inflation rates between October and November 2022 came from transport, particularly motor fuels, with rising prices in restaurants, cafes, and pubs making the largest, partially offsetting, upward contribution,” said the ONS.

Japanese inflation expectations hit record

Japan’s Chief Cabinet Secretary Hirokazu Matsuno stated, in response to the Bank of Japan (BoJ) Tankan survey, that they “must be cautious to downside risks from a weakening global economy amid monetary tightening and inflation.”

The carefully regarded Tankan survey conducted by the Bank of Japan revealed early Wednesday that business confidence among large Japanese manufacturers declined for the fourth consecutive quarter in the three months leading up to December.

The poll also showed that the inflation predictions of Japanese companies for the next one and three years had reached their highest levels ever.

Later today, investors will focus on how the US Federal Reserve (Fed) behaves during the FOMC meeting today. The market anticipates a 0.50% rate rise and signs of monetary policy softening beginning in 2023. Nevertheless, any hawkish surprise could cause a significant increase in the market volatility.

Technically speaking, if the price closes below 167.10, the short-term trend could change to bearish, targeting previous lows in the 166.30 area. Alternatively, a break above today’s highs near 167.60 could send the price toward yesterday’s highs near 169.

GBPJPY 30m char

GBPJPY 30m chart, source: author´s analysis, tradingview.com

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