Since New Year’s Day, the GBP/JPY (CME:URM14) has been putting in lower highs and higher lows, forming a classic symmetrical triangle pattern. While GBP/USD rose to its highest rate in five years last week, GBP/JPY stubbornly refused to break above recent resistance in the 1.7350 area, and based on today’s fundamental developments, the pair may now be due for more substantial pullback as we head into summer in the Northern Hemisphere.
The big catalysts driving sterling today were the UK Claimant Count report and the Bank of England’s Quarterly Inflation Report. As my colleague Kathleen Brooks discussed earlier today, the employment report was mixed, with improving payrolls but weak wage growth. Meanwhile, the big takeaway from the Quarterly Inflation report and BOE Governor Carney’s accompanying speech was that, “a rate hike will only take place when the time is right, any hikes will be gradual and rates will remain low compared to historical levels.” These two high-impact economic reports suggest that the markets’ expectations of a rate hike early next year may be premature, and the GBP has fallen as a result.