British Pound trades subduedly against Japanese Yen, BoE’s Greene supports quick rate hikes
- The British Pound is marginally down at around 209.25 against the Japanese Yen.
- BoE’s Greene said that the central bank should act quickly to diminish fears of second-round inflation effects.
- The BoJ is unlikely to deliver back-to-back interest rate hikes.
The British Pound (GBP) trades marginally lower against the Japanese Yen (JPY) at around 209.25 during the late Asian trade on Tuesday. The cross faces mild selling pressure even as Bank of England (BoE) policymaker Megan Greene has argued in favor that the central bank should act now to contain inflationary pressures before it gets too late and it starts spreading to wages and broad consumer prices.
So far this year, the BoE has kept interest rates steady at 3.75%. Meanwhile, market experts see the BoE raising interest rates in the November meeting on the back improved economic outlook.
Analysts at Commerzbank highlight that the UK economy has “remained relatively resilient so far this year,” noting that “following growth of 0.6% q/q in the first quarter, second-quarter GDP was revised up to 0.5% in the final release.” They add that “monthly GDP data for July, showing a 0.4% m/m increase, also point to a solid start to the third quarter,” reinforcing the picture of firmer underlying momentum.
Against this backdrop, Commerzbank argues that “the improved growth outlook should make it easier for the BoE to raise rates further in order to lean against inflation.” The bank acknowledges that “until now, we had not expected the BoE to hike rates again,” but says “recent developments… have led us to conclude that a November rate hike is now more likely than not.” Moreover, Commerzbank “do[es] not expect it to be a one-off move,” and now “anticipate[s] another hike in February, taking Bank Rate to 4.25%.”
For fresh cues regarding the UK economic strength, investors await monthly Gross Domestic Product (GDP) data for August, which is scheduled for Thursday. According to estimates, the UK economy contracted 0.1% in August after a 0.4% expansion in July.
Meanwhile, the Japanese Yen outperforms its major peers despite market experts arguing against back-to-back interest rate hikes from the Bank of Japan (BoJ).
Japanese Yen Price Today
The table below shows the percentage change of Japanese Yen (JPY) against listed major currencies today. Japanese Yen was the strongest against the US Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.16% | -0.08% | -0.17% | -0.09% | -0.02% | -0.09% | -0.18% | |
| EUR | 0.16% | 0.08% | -0.04% | 0.07% | 0.11% | 0.07% | -0.02% | |
| GBP | 0.08% | -0.08% | -0.10% | 0.00% | 0.04% | -0.02% | -0.09% | |
| JPY | 0.17% | 0.04% | 0.10% | 0.09% | 0.15% | 0.08% | 0.00% | |
| CAD | 0.09% | -0.07% | 0.00% | -0.09% | 0.07% | -0.01% | -0.08% | |
| AUD | 0.02% | -0.11% | -0.04% | -0.15% | -0.07% | -0.06% | -0.15% | |
| NZD | 0.09% | -0.07% | 0.02% | -0.08% | 0.00% | 0.06% | -0.07% | |
| CHF | 0.18% | 0.02% | 0.09% | -0.01% | 0.08% | 0.15% | 0.07% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Japanese Yen from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent JPY (base)/USD (quote).
BoJ seen shifting to inflation stabilisation but not yet ready for rapid hikes
Analysts at Rabobank argue that the Bank of Japan has reached an important inflection point, noting that “it now appears to have reached the point when it can instead shift its focus to stabilising price pressures around the target level.” However, they caution that this does not herald an aggressive tightening cycle, stressing that “even so, the Bank is still not widely viewed as being in a position in which back-to-back rate rises are appropriate.”
Central banks FAQs
Central Banks have a key mandate which is making sure that there is price stability in a country or region. Economies are constantly facing inflation or deflation when prices for certain goods and services are fluctuating. Constant rising prices for the same goods means inflation, constant lowered prices for the same goods means deflation. It is the task of the central bank to keep the demand in line by tweaking its policy rate. For the biggest central banks like the US Federal Reserve (Fed), the European Central Bank (ECB) or the Bank of England (BoE), the mandate is to keep inflation close to 2%.
A central bank has one important tool at its disposal to get inflation higher or lower, and that is by tweaking its benchmark policy rate, commonly known as interest rate. On pre-communicated moments, the central bank will issue a statement with its policy rate and provide additional reasoning on why it is either remaining or changing (cutting or hiking) it. Local banks will adjust their savings and lending rates accordingly, which in turn will make it either harder or easier for people to earn on their savings or for companies to take out loans and make investments in their businesses. When the central bank hikes interest rates substantially, this is called monetary tightening. When it is cutting its benchmark rate, it is called monetary easing.
A central bank is often politically independent. Members of the central bank policy board are passing through a series of panels and hearings before being appointed to a policy board seat. Each member in that board often has a certain conviction on how the central bank should control inflation and the subsequent monetary policy. Members that want a very loose monetary policy, with low rates and cheap lending, to boost the economy substantially while being content to see inflation slightly above 2%, are called ‘doves’. Members that rather want to see higher rates to reward savings and want to keep a lit on inflation at all time are called ‘hawks’ and will not rest until inflation is at or just below 2%.
Normally, there is a chairman or president who leads each meeting, needs to create a consensus between the hawks or doves and has his or her final say when it would come down to a vote split to avoid a 50-50 tie on whether the current policy should be adjusted. The chairman will deliver speeches which often can be followed live, where the current monetary stance and outlook is being communicated. A central bank will try to push forward its monetary policy without triggering violent swings in rates, equities, or its currency. All members of the central bank will channel their stance toward the markets in advance of a policy meeting event. A few days before a policy meeting takes place until the new policy has been communicated, members are forbidden to talk publicly. This is called the blackout period.
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