GBP/JPY rises above 211.50 as BoE rate cut bets ease
- GBP/JPY appreciates as strong GDP data tempered the Bank of England's February rate-cut expectations.
- The Japanese Yen gains support amid potential intervention by Japanese authorities.
- The BoJ is expected to hold rates in January, with markets watching for a possible June move.
GBP/JPY halts its three-day losing streak, trading around 211.70 during the European hours on Monday. The currency cross appreciates as the Pound Sterling (GBP) gains ground after stronger-than-expected monthly Gross Domestic Product (GDP) data released last week tempered Bank of England (BoE) rate cut bets for February.
The United Kingdom (UK) economy expanded 0.3% month-over-month (MoM) in November, rebounding from a 0.1% contraction in October and beating expectations of a 0.1% rise. Markets now look ahead to key UK data later this week, including employment and CPI inflation figures, which could provide further insight into the Bank of England’s policy outlook.
The upside in GBP/JPY cross may be restrained as the Japanese Yen (JPY) gains support amid possible intervention by the Japanese authorities. Japan’s Finance Minister Satsuki Katayama signaled the possibility of coordinated intervention with the United States to support the weak currency. On Friday, Katayama reiterated that all options remain on the table, including direct market intervention.
Japan’s Industrial Production fell 2.7% month-over-month (MoM) in November 2025, slightly worse than the 2.6% preliminary estimate, reversing October’s 1.5% gain and marking the sharpest decline since January 2024.
The JPY also receives support from expectations of Bank of Japan (BoJ) rate hikes. The Japanese central bank is widely expected to hold its policy rate at 0.75% this week, though markets are monitoring the possibility of a move in June. Last week, BoJ Governor Kazuo Ueda reiterated that the central bank remains prepared to raise rates if economic and price developments evolve in line with its outlook.
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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