The GBP/JPY cross extends its sideways consolidative price move for the second straight day and trades below the 211.00 mark during the early European session on Wednesday. Spot prices remain close to a five-week low, touched on Monday, though the mixed fundamental backdrop warrants caution before placing aggressive directional bets.
Investors remain concerned about Japan’s fiscal health on the back of Prime Minister Sanae Takaichi’s aggressive spending and tax cut plans. Adding to this, domestic political uncertainty ahead of a snap election on February 8, along with a positive risk tone, undermines the safe-haven JPY and turns out to be a key factor acting as a tailwind for the GBP/JPY cross. However, the Bank of Japan’s (BoJ) hawkish outlook and intervention fears help limit deeper JPY losses.
In fact, the December BoJ meeting minutes released earlier today showed that members were more confident about sustaining a moderate wage–price cycle and were using that assessment to justify another step toward less accommodative policy. This, in turn, highlights the central bank’s readiness to continue pushing up still-low borrowing costs. In contrast, traders are pricing in one or possibly two quarter-point rate interest cuts by the Bank of England (BoE) in 2026.
Apart from this, a goodish US Dollar (USD) recovery is seen exerting downward pressure on the British Pound (GBP), which further contributes to capping the GBP/JPY cross. However, the range-bound price action following a bearish gap opening on Monday makes it prudent to wait for strong follow-through selling before positioning for an extension of the corrective pullback from the vicinity of the 215.00 mark, or the highest level since July 2008, touched last week.
Pound Sterling FAQs
The Pound Sterling (GBP) is the oldest currency in the world (886 AD) and the official currency of the United Kingdom. It is the fourth most traded unit for foreign exchange (FX) in the world, accounting for 12% of all transactions, averaging $630 billion a day, according to 2022 data.
Its key trading pairs are GBP/USD, also known as ‘Cable’, which accounts for 11% of FX, GBP/JPY, or the ‘Dragon’ as it is known by traders (3%), and EUR/GBP (2%). The Pound Sterling is issued by the Bank of England (BoE).
The single most important factor influencing the value of the Pound Sterling is monetary policy decided by the Bank of England. The BoE bases its decisions on whether it has achieved its primary goal of “price stability” – a steady inflation rate of around 2%. Its primary tool for achieving this is the adjustment of interest rates.
When inflation is too high, the BoE will try to rein it in by raising interest rates, making it more expensive for people and businesses to access credit. This is generally positive for GBP, as higher interest rates make the UK a more attractive place for global investors to park their money.
When inflation falls too low it is a sign economic growth is slowing. In this scenario, the BoE will consider lowering interest rates to cheapen credit so businesses will borrow more to invest in growth-generating projects.
Data releases gauge the health of the economy and can impact the value of the Pound Sterling. Indicators such as GDP, Manufacturing and Services PMIs, and employment can all influence the direction of the GBP.
A strong economy is good for Sterling. Not only does it attract more foreign investment but it may encourage the BoE to put up interest rates, which will directly strengthen GBP. Otherwise, if economic data is weak, the Pound Sterling is likely to fall.
Another significant data release for the Pound Sterling is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period.
If a country produces highly sought-after exports, its currency will benefit purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.
