The British pound is steady on Tuesday. In the North American session, GBP is trading at 1.2678 at the time of writing, unchanged on the day. On Monday, the pound ended a six-day slide, during which the currency lost 2.8%.

Markets brace for higher UK inflation

The Bank of England has done an excellent job slashing inflation, which was in double digits for much of 2023. The September inflation report was a milestone as inflation eased to 1.7%, the first time it was below the BoE target of 2% since April 2021.

Still, the BoE is under no illusions that the tenacious battle against inflation is over. Services inflation has fallen significantly but is running at 4.9%, more than double the target. The Trump election win has raised deep concerns that Trump’s trade policy promises, with threats of tariffs on US trading partners, could lead to higher global inflation.

The BoE lower rates by 25 basis points on Nov. 7, marking the second rate cut in the current easing cycle. The September inflation report contributed to the decision to lower rates at that meeting and Wednesday’s inflation release will be closely monitored by the BoE, with the following inflation report coming out on Dec. 18, just one day before the BOE’s next rate announcement.

BoE Governor Bailey said in a report to the House of Commons Treasury select committee that the BoE needed to keep a close eye on services inflation, which remained above a level that was compatible with “on target inflation”.

Bailey also stated that he favored a gradual approach to cutting rates in order for the central bank to assess the effects of the government’s recent budget on growth and inflation. The BoE’s November forecasts indicate that the budget will result in higher growth and inflation in the near term, which could slow the pace of rate cuts.

GBP/USD Technical

There is resistance at 1.2707 and 1.2736

1.2629 and 1.2658 are the next support levels

Source: ACTIONFOREX

[Quick Facts]

[News Details]

[Today's Focus]

The Japanese Yen (JPY) witnessed good two-way price moves on Tuesday and ended the day nearly unchanged against its American counterpart. Russia's announcement that it would lower its threshold for a nuclear strike drove some haven flows towards the JPY. The global flight to safety triggered a sharp fall in the US Treasury bond yields and further benefited the lower-yielding JPY, dragging the USD/JPY pair to over a one-week low, around the 153.30-153.25 region. The initial market reaction, however, faded rather quickly after comments from Russian and US officials helped ease market concerns about the onset of a full-blown nuclear war. 

Adding to this, the uncertainty over the timing of further monetary policy tightening by the Bank of Japan (BoJ) continued to undermine the JPY and, to a larger extent, overshadowed a modest US Dollar (USD) weakness. The JPY remains depressed following the release of Trade Balance data from Japan and assists the USD/JPY pair to build on the overnight solid intraday recovery of over 150 pips. That said, speculations that Japanese authorities might intervene in the FX market to prop up the domestic currency, coupled with geopolitical uncertainties, might hold back the JPY bears from placing aggressive bets and act as a headwind for the pair. 

Japanese Yen bears look to seize back control amid fading safe-haven demand, BoJ uncertainty

Russian President Vladimir Putin approved the change to the country's nuclear doctrine on Tuesday, days after US President Joe Biden authorized Ukraine to use long-range American missiles against military targets inside Russia.

Russian Foreign Minister Sergei Lavrov said the country would do everything possible to avoid the onset of a nuclear war and called Germany's decision on Monday not to provide long-range missiles to Ukraine a responsible position.

Meanwhile, the White House said that the United States (US) does not plan to adjust its own nuclear posture in response to Russia's move, which, in turn, tempered safe-haven demand and weighed on the Japanese Yen. 

Bank of Japan Governor Kazuo Ueda earlier this week warned against keeping borrowing costs too low and signaled another interest rate increase, was vague on the timing and offered no hints about a hike in December.

A report published by the Ministry of Finance earlier this Wednesday showed that Japan's total exports increased by 3.1% and imports grew by 0.4% from a year earlier in October, resulting in a trade deficit of ¥461.2 billion.

Market participants have been anticipating slightly higher inflation after former President Donald Trump’s election victory, which was seen as a key trigger behind the recent sharp move up in the US Treasury bond yields. 

Federal Reserve Bank of Kansas President Jeffrey Schmid noted on Tuesday that large fiscal deficits will not cause inflationary pressures because the central bank will prevent it, though that could mean higher interest rates.

The US Dollar consolidates its recent pullback from the year-to-date high and languishes near the weekly low, albeit, the downside remains cushioned in the wake of expectations of a less aggressive easing by the Fed. 

Scheduled speeches by a slew of influential FOMC members later this Wednesday will influence the USD price dynamics and provide some impetus to the USD/JPY pair in the absence of any relevant US macro data.

USD/JPY needs to find acceptance above 155.00 to support prospects for further appreciation

From a technical perspective, the USD/JPY pair's overnight strong rebound suggests that the recent corrective slide from a multi-month high has run its course. The subsequent move up, along with the positive oscillators on the daily chart, supports prospects for a further appreciating move for spot prices. Bulls, however, need to wait for a sustained strength above the 155.00 mark before placing fresh bets. 

Some follow-through buying beyond the weekly top, around the 155.35 area, will reaffirm the positive outlook and lift the USD/JPY pair to the 155.70 intermediate hurdle en route to the 156.00 round-figure mark. The momentum could extend further towards retesting the multi-month top, around the 156.75 region touched last Friday.

On the flip side, the 154.40-154.35 area now seems to protect the immediate downside ahead of the 154.00 mark. Any further decline might continue to find decent support near the 153.30-153.25 region, or the overnight swing low. This is followed by the 153.00 round figure and the next relevant support near the 152.70-152.65 area, below which the USD/JPY pair could drop to the very important 200-day Simple Moving Average (SMA), around the 151.90-151.85 region.

Japanese Yen FAQs

What key factors drive the Japanese Yen?

The Japanese Yen (JPY) is one of the world’s most traded currencies. Its value is broadly determined by the performance of the Japanese economy, but more specifically by the Bank of Japan’s policy, the differential between Japanese and US bond yields, or risk sentiment among traders, among other factors.

How do the decisions of the Bank of Japan impact the Japanese Yen?

One of the Bank of Japan’s mandates is currency control, so its moves are key for the Yen. The BoJ has directly intervened in currency markets sometimes, generally to lower the value of the Yen, although it refrains from doing it often due to political concerns of its main trading partners. The BoJ ultra-loose monetary policy between 2013 and 2024 caused the Yen to depreciate against its main currency peers due to an increasing policy divergence between the Bank of Japan and other main central banks. More recently, the gradually unwinding of this ultra-loose policy has given some support to the Yen.

How does the differential between Japanese and US bond yields impact the Japanese Yen?

Over the last decade, the BoJ’s stance of sticking to ultra-loose monetary policy has led to a widening policy divergence with other central banks, particularly with the US Federal Reserve. This supported a widening of the differential between the 10-year US and Japanese bonds, which favored the US Dollar against the Japanese Yen. The BoJ decision in 2024 to gradually abandon the ultra-loose policy, coupled with interest-rate cuts in other major central banks, is narrowing this differential.

How does broader risk sentiment impact the Japanese Yen?

The Japanese Yen is often seen as a safe-haven investment. This means that in times of market stress, investors are more likely to put their money in the Japanese currency due to its supposed reliability and stability. Turbulent times are likely to strengthen the Yen’s value against other currencies seen as more risky to invest in.

Source: FXSTREET

Headline CPI inflation increased in October to 2.0% year-on-year (y/y), above expectations for a 1.9% y/y print and up from the 1.6% y/y reading from September.

The acceleration was due to base-year effects on gasoline prices (the impact of price changes from a year ago falling out of the data), which were down 4.0% y/y, compared to down 10.7% y/y in September. Also pushing prices higher were food costs (2.7% y/y), which have been rising faster than overall inflation for three straight months.

Encouragingly, inflation in services has continued to ease (3.6% y/y from 4.0% y/y in September). Shelter costs have been a big driver of services inflation, but with lower interest rates, mortgage interest cost inflation has decelerated (14.7% y/y from 16.7% y/y in September), while rent inflation is also easing (7.3% y/y from 8.2% y/y in September).

The Bank of Canada’s preferred “core” inflation measures increased to 2.6% y/y on average, from 2.4% y/y in September.

Key Implications

Yesterday’s data reinforced the message that the Bank of Canda’s (BoC) goal of stabilizing inflation won’t be a smooth path. While the increase in headline inflation was expected, the move higher in core inflation was discouraging. Even worse, on a three-month basis, core inflation moved from just above the BoC’s target, at 2.1%, to 2.8%. That was a big move and points to core inflation remaining above the BoC’s target in the coming months. High inflation for shelter, food, and health care were behind this, and aren’t looking likely to go away any time soon.

The BoC is likely to view today’s data release as a minor setback. Inflation had become a background worry, and while it isn’t raising any red flags yet, yesterday’s data is a reminder that getting price growth to settle at 2% will take time. The BoC will also be getting a reading on Q3 GDP growth next week. That release will do a lot to help guide the central bank in deciding whether it will cut by 25 or 50 bps in December. We think that a 25 bp cut remains the most likely outcome, especially given the resilience that the economy has demonstrated over the last few months.

Market Picture

The cryptocurrency market is down 0.5% in 24 hours to $3.08 trillion. The market has paused after rallying since the end of last week. Ethereum and Litecoin have pulled back from recent highs, while XRP is stabilising. Bitcoin and Solana are hovering near recent highs and are getting ready to update them.

As a result, the sentiment index reached 90 for only the third time this year—it was only higher at the end of 2020. This sentiment confirms that traders are sticking to the four-year halving cycles. In 2020, price records attracted companies to buy the first currency in reserve to support market interest in equities. By 2024, even politicians seem to be scoring PR points by showing their commitment to Bitcoin.

Bitcoin is trading at nearly $92K. A break above the 13th’s highs of $93.3K would signal an entry into a growth extension with a target of $110K after a corrective pullback to 76.4% of the initial momentum. Such shallow corrections are typical of strong bull markets when buyers quickly return.

News Background

According to CoinShares, global crypto fund investments rose by $2.193 billion last week, following inflows of $1.978 billion the week before. Investments in Bitcoin rose by $1.481 billion, Ethereum by a significant $646 million, and Solana by $24 million. Investments in funds that allow bitcoin shorts rose sharply by $49 million. Investments in funds with multiple crypto assets fell by $19 million.

BCA Research noted that the value of one of the fractal analysis metrics signals a possible rise in Bitcoin above $200K in the current cycle.

Bernstein expects key catalysts in 2025 to push Bitcoin towards the $200K target level. These include the appointment of a new SEC chairman and treasury secretary, regulatory easing, progress on creating a US strategic bitcoin reserve, creating a powerhouse for BTC mining in the US, and creating a regulatory framework for stablecoins. Another driver will be coin purchases in ETFs, as well as by miners and companies such as MicroStrategy.

From the 11th to the 17th of November, MicroStrategy purchased an additional 51,780 BTC (~$4.6 billion) using proceeds from the issuance and sale of shares. The average purchase price was approximately $88,627. MicroStrategy now reserves 331,200 BTC at an average price of $49,874 per coin.

Record daily fees pushed Solana to a peak of over $245 in December 2021. The return of meme coin hype fuelled high network activity.