GBP/JPY continues downside rebalance after rate differential changes course

• GBP/JPY eased to 190.30 on Thursday following an expected BoE rate cut.
• The BoE trimmed interest rates by a quarter-point, while BoJ raised.
• After a structural shift in the Guppy’s rate differential, the GBP is declining.

The Guppy declined to 190.30 on Thursday after a downward shift in the Bank of England’s (BoE) main reference rates helped to trim the top off of the GBP/JPY’s wide interest rate differential, giving the Yen a chance to recover ground and pushing down the Pound Sterling.

The BoE trimmed its interest rate by 25 basis points to a flat 5.0% early Thursday, deflating the GBP and sending GBP/JPY into a 16-week low near 190.25. This follows the Bank of Japan’s (BoJ) own rate hike earlier in the week, dragging Japanese interest rates back into positive territory above 0.1% for the first time since 2010.

Guppy is undergoing a hard rebalance following a trimming of the rate differential between the GBP and the Yen, and the upcoming trading week provides a reprieve from key economic data for both currencies. The data docket for both the UK and Japan is strictly mid-tier next week, and UK labor figures are not due until mid-August.

GBP/JPY technical outlook

The Guppy is on pace to chalk in a fourth straight down week as bearish momentum accelerates into the low end, dragging the pair further back from 16-year highs just above 208.00. The pair is easing back towards 190.00, but despite a -8.62% decline from multi-year peaks, a long-run bull market leaves price action buried deep in bull country with bids still swimming over 11% above the 200-day Exponential Moving Average (EMA) at 171.07.

GBP/JPY daily chart