The GBP/JPY pair is marching towards the crucial resistance of 182.00 in the European session. The cross has picked strength after overstepping the previous day’s high of 181.45 as expectations of a tweak in the Bank of Japan’s (BoJ) ultra-dovish monetary policy by BoJ Governor Kazuo Ueda have lost their impact.
The contribution of higher domestic demand to inflationary pressures in Japan is increasing but is still far from the impact of higher prices of imported products. Wages have shown little promising signs of recovery but the journey towards a 2% stable inflation target is still far. The BoJ might continue its decade-long ultra-dovish interest rate policy this month to elevate wage pressures further.
Meanwhile, the Pound Sterling has hogged the limelight as investors are assured that more interest rate hikes by the Bank of England are in the pipeline so that inflation could return to 2%. After bleak employment reports, stable wage pressures, and weak factory activities, investors are shifting their focus toward inflation data, which will release on Wednesday at 06.00 GMT.
In May, annual headline inflation rebounded to 8.7% and core CPI that excludes volatile oil and food prices printed a fresh high of 7.1%. Catalysts that have been propelling severe inflation in the UK economy are labor shortages and significantly higher food inflation. For labor shortages, the entire blame goes to the Brexit event and early retirements by UK individuals. While food price inflation in the Britain economy dropped to 18.3% in May from its 45-year high of 19.1 and has not peaked yet.
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