The pound continues its gains for the third day in a row against the Japanese yen, rising more than 0.6% to regain the 197.40 level.
The pound’s gains today come after a higher-than-expected acceleration in inflation in the United Kingdom (TADAWUL:4280), exceeding the Bank of England’s 2% target.
The Consumer Price Index recorded growth of 2.3% in October on an annual basis, exceeding expectations of 2.2%. This pace of inflation was the fastest in two years. Core inflation, which excludes food and energy prices, also accelerated to 3.3%, also exceeding expectations.
The Wall Street Journal quoted Alpesh Paleja, interim deputy chief economist at the Confederation of British Industry, as saying that inflation could remain above the central bank’s target for longer than expected, in light of the solidity of service and wage inflation and the increase in government spending in October.
These factors, in addition to the upward risks to inflation coming from the war fronts in the Middle East and Ukraine, are likely to maintain concerns about the return of energy prices to rise due to the potential disruption of oil supplies. This in turn may encourage the BoE to be more patient again regarding the pace of interest rate cuts. The central bank is expected to keep interest rates unchanged at its meeting next December.
In contrast, in Japan, despite the statement of the Governor of the Bank of Japan, Kazuo Ueda, that the door is still open to further interest rate hikes, the yen continues to lose ground against foreign currencies, including the dollar and the pound. Ueda expressed the concerns of monetary policymakers regarding the uncertainty around “a countless” number of factors, including US trade policies and their implications.
In the past, the Japanese central bank had hesitated before making decisions on significant shifts in monetary policy represented by abandoning the policy of controlling the yield curve and negative interest rates in light of the volatility witnessed in the markets. While this current uncertainty is likely to fuel the volatility in the markets.