how high can the pound sterling climb to?
2024-05-28 09:03:07 ET
The British pound is in a strong bullish momentum as investors adjust their expectations about the next Bank of England (BoE) interest rate cuts. The GBP/JPY exchange rate has soared to over 200, its highest level in decades. It has also soared by over 12% from its lowest point this year and by more than 60% from its pandemic low.
Bank of England interest rates decision
The pound to GBP pair has continued soaring this year after the relatively strong UK inflation numbers. According to the Office of National Statistics (ONS), the headline Consumer Price Index (CPI) dropped to 2.4% in April. Similarly, the core CPI data retreated to 3.4%, also higher than what analysts were expecting.
Therefore, most
economists have changed their tune
on when they expect the Bank of England to start cutting interest rates. Before these numbers came out, most of them were expecting the bank to start cutting rates in its June 20th meeting. Now, most of them expect it to cut either in August or September.
Meanwhile, the Bank of Japan (BoJ) has committed to maintaining low interest rates for a while. After hiking rates in March, it has resisted hiking rates even as the Japanese yen has plummeted in the past few months.
The implication of all this is that the GBP/JPY pair has become a popular carry trade opportunity. Carry trade is a situation where investors borrow from low-interest rates countries to higher rates one. In this case, one can borrow the Japanese yen and invest in British assets.
Hedge funds and other speculators have taken notice. Data by the CFTC shows that the speculative positioning on the sterling turned positive for the first time in months. On the other hand, the bearish positioning on the Japanese yen has jumped to the highest point in weeks.
GBP/JPY technical analysis
The daily chart shows that the GBP to JPY exchange rate has been in a strong bull run in the past few years. It has remained above all moving averages while the Average Directional Index (ADX) has moved above 30. An ADX figure of 25 and above is a sign that a trend is strengthening.
The Relative Strength Index (RSI) has also continued soaring and has moved to the overbought point of 72. The pair has also risen slightly above the psychological level of 200. Therefore, the pair’s outlook is bullish, unless the BoJ intervenes. If this happens, the pair will likely rise and retest the resistance at 205.
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GBP/JPY analysis: how high can the pound sterling climb to?
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