GBPJPY: BoE's Megan Greene Discusses Inflation (2nd April)

Technical Analysis

• BoE Policy Rate: 4.75% (unchanged in March)
• Inflation Outlook:
  • Disinflationary pressures are in play but remain weaker than expected.
  • Underlying inflation persistence is higher than anticipated.
  • Consumer inflation expectations have risen over the past six months.

Fundamental Factors Affecting the UK Economy

1. Potential Disinflation from US Tariffs
   • If tariffs force US trade partners to divert goods at lower prices to the UK, it could ease inflation in Britain.
   • Exchange rate movements could further amplify or dampen this effect.
2. Inflation Remains Sticky
   • Despite BoE's tightening, inflation has not fallen as expected.
   • The output gap must widen further for price growth to return to the 2% target.
   • Higher inflation expectations remain a concern for the BoE.
3. BoE's Cautious Approach to Rate Cuts
   • The central bank remains wary of easing policy too soon.
   • Rate cuts are unlikely until inflation shows more evident signs of sustained decline.

Key Takeaway for Traders

• Short-term: BoE will likely hold rates steady until inflation indicators improve.
• Medium-term: If US tariffs lead to disinflation, the BoE could ease policy sooner than expected.
• Long-term: The BoE will remain cautious about inflation expectations—any sharp rise could delay rate cuts and support GBP strength.

GBPJPY – D1 Timeframe

Following the bearish break of structure on the daily timeframe chart of GBPJPY, we see price rising slowly towards the highlighted area of supply which is the origin of the initial bearish momentum. The supply zone enjoys confluence from a resistance trendline, thus increasing the likelihood of a bearish outcome.

GBPJPY – H4 Timeframe

The 4-hour timeframe chart of GBPJPY presents a clear SBR pattern and a clear FVG area. The daily timeframe supply zone overlaps the 88% Fibonacci retracement level—the FVG and inducement provide additional confluences for the bearish sentiment.

Analyst's Expectations: 

Direction: Bearish

Target- 188.830

Invalidation- 198.871

CONCLUSION

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